b urnett federal tax€¦ · the bradley burnett federal tax update 2019 by bradley burnett bradley...

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T HE B RADLEY B URNETT F EDERAL T AX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool for Preparing 2019 Returns in the 2020 Busy Season Purchase and download the complete Federal Tax Update at https://cpatrendlines.com/shop/bb18ftu/

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Page 1: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

THE BRADLEY BURNETT FEDERAL TAX

UPDATE2019

By Bradley Burnett

Bradley Burnett Tax Seminars Ltd

JD LLM (Taxation)

Comprehensive Reference Tool

for Preparing 2019 Returns in the

2020 Busy Season

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

(Complete with Tax Cuts and Jobs Act)

Bradley Burnett JD LLM (Taxation)

bradleybradleyburnettcom

Bradley Burnett Tax Seminars Ltd

BradleyBurnettTaxSeminarscom

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Disclaimer

These seminar materials are intended to provide seminar participants with guidance in federal tax law matters The materials and related presentation(s) do not constitute and should not be treated as professional advice regarding the use of any particular tax treatment of the consequences associated with any technique Every effort has been made to ensure the accuracy of these materials Bradley Burnett Tax Seminars Ltd Bradley Burnett the sponsoring organization(s) the marketing organization and any others associated with the dissemination of these materials and related presentation(s) do not assume responsibility for any individualrsquos reliance upon the written or oral information provided in the materials or during the seminar Readers of the materials and seminar participants must independently verify all statements made before applying them to a particular fact situation and independently determine the impact of any particular tax planning or compliance technique implementing it

I acknowledge and thank Mary Neely from Springfield Missouri for her extraordinary work navigating the word processing software and assembling and formatting the materials

I also acknowledge and thank my friend Greg White CPA from Seattle Washington for his intelligent tax-related banter and capable occasional critique of materials This is a far better book because of him

Bradley Burnett

ldquoAs I sit looking at the place the piano used to be before I had to sell it to pay my income tax

I find myself in a thoughtful moodrdquo

PG Wodehouse

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

i

copy 2019 Bradley Burnett Tax Seminars Ltd

Table of Contents

Chapter 1 Individual 1mdashi

Chapter 2 Real Estate 2mdashi

Chapter 3 Investment 3mdashi

Chapter 4 Individual Retirement Accounts 4mdashi

Chapter 5 Estate Gift and Fiduciary 5mdashi

Chapter 6 Business and Cost Recovery 6mdashi

Chapter 7 Fringe Benefit and Qualified Retirement Plans 7mdashi

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099 8mdashi

Chapter 9 C Corporations and Exempt Organizations 9mdashi

Chapter 10 S Corporations 10mdashi

Chapter 11 Disregarded Entities 11mdashi

Chapter 12 Partnerships and LLCs 12mdashi

Chapter 13 IRS Practice and Procedure 13mdashi

Chapter 14 Special Topics 14mdashi

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashi

Chapter 1 Individual

Table of Contents

Charitable Contribution Substantiation and Reporting 1mdash1

Charitable Contribution - Substantiation 1mdash1

Substantiation 1mdash1

Out-of-Pocket Expenses for Volunteer Work 1mdash1

Tax Exempt Organization Search (TEOS) 1mdash2

Tax Cuts Jobs Act (TCJA) Charitable Contributions 1mdash3

TCJA - Cash Contributions 1mdash3

TCJA - Contributions 1mdash3

TCJA ndash Charitable Contributions 1mdash4

TCJA ndash Itemized Deduction for Charitable Gifts 1mdash4

Intent 1mdash4

Donation of Easement - Fair Market Value 1mdash4

Fair Market Value 1mdash4

Donation of Easement 1mdash5

What Does Donor Expect to Receive in Return 1mdash5

Quid Pro Quo 1mdash6

Written Contemporaneous Acknowledgement 1mdash7

Charitable Contributions At Least Some Proof Is Needed 1mdash8

IRS Form 8283 1mdash10

IRS Form 8283 ndash Timeliness 1mdash10

IRS Form 8283 - Who Must File 1mdash11

IRS Form 8283 ndash Logistics 1mdash12

Form 8283 - Page 1 Part I 1mdash12

Form 8283 - Page 1 Part II 1mdash12

Form 8283 - Page 2 Part I 1mdash13

Non-Cash Contributions - Aggregation of Similar Items by Category 1mdash13

Form 8283 - Page 2 Part II 1mdash14

Appraisal - Substantial Compliance 1mdash15

Form 8283 - Page 2 Part IV 1mdash15

Appraisal Rules - No Substantial Compliance 1mdash15

Non-Cash Contributions - Charitable Fundraising Campaigns 1mdash16

Charitable Fundraising Campaigns 1mdash16

sect170(f)(12) - Vehicles Boats and Airplanes 1mdash17

Qualified Charitable Distributions - From IRAs 1mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashii

New SALT Cap 1mdash18

SALT Cap Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Exception to New SALT Cap - Contributions by Business 1mdash20

Charitable Contribution - Substantiation 1mdash20

Rates ndash Before and After TCJA 1mdash20

Wage Withholding 1mdash21

Underpayment of Individual Income Tax 1mdash22

Waiver of 2018 Underpayment of Estimated Tax Penalty 1mdash22

Avoiding Underpayment of Estimated Tax Penalty for 2018 1mdash22

IRS Interest 1mdash23

2019 Withholding and Estimated Tax 1mdash23

IRS Issues Explanations for Denial of Deductions Under TCJA 1mdash23

New SALT Cap 1mdash24

New SALT Cap 1mdash25

SALT Cap Workarounds 1mdash25

Government Response to SALT Workarounds 1mdash25

Effect of New SALT Cap on Form 1041 1mdash26

Exception to New SALT Cap Contributions by Business 1mdash26

Divorce Alimony and Property Settlements After TCJA 1mdash30

Divorce Rate 1mdash30

Alimony ndash Compliance Gap 1mdash31

TCJA ndash Alimony 1mdash32

2019 Form 1040 ndash Alimony 1mdash32

TCJA Divorce Filing Firestorm 1mdash33

Alimony ndash State Specific Formulas 1mdash33

Alimony ndash Timing Timing Timing 1mdash33

Alimony ndash Pre-2018 Agreement - Dragged Back Into Court 1mdash33

TCJA ndash Alimony Transition Rule 1mdash34

TCJA ndash Alimony Trusts Eliminated 1mdash35

Alimony Trusts Grandfathered In 1mdash35

Alimony Trust Margarita or Both 1mdash35

TCJA ndash Alimony ndash The Ultimate Question 1mdash36

Divorce Planning ndash Punch List 1mdash36

Marriage Penalty 1mdash37

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiii

Marriage Penalty and Tax Rates 1mdash37

Divorce Planning ndash Punch List 1mdash38

TCJA ndash Personal Exemption Deduction 1mdash39

TCJA ndash Child Family Tax Credit 1mdash39

Child Tax Credit ndash Compliance Issues 1mdash40

Child Tax Credit Planning 1mdash40

Personal Exemption Remains Relevant 1mdash40

Personal Exemption and Form 8332 1mdash40

Form 8332 - Do It Right the First Time 1mdash41

Parent vs Child Investing 1mdash41

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash42

If Pay Down Acquisition Debt Itrsquos Gone 1mdash43

TCJA ndash Home Equity Debt 1mdash43

TCJA ndash Acquisition Debt 1mdash44

Interest Tracing Rules 1mdash45

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash45

Interest Tracing Rules ndash IRS Notice 89-35 1mdash45

Head of Household ndash Due Diligence 1mdash46

Other New Divorce Developments 1mdash46

Filing Status 1mdash47

Alimony or Not 1mdash47

Child Support vs Alimony 1mdash48

Divorce and S Corp Stock 1mdash49

Divorce Related Employment Restrictions on S Stock - Not Second Class of Stock 1mdash49

Innocent Spouse Relief 1mdash49

IRS Collections - Ex-Spouses After Divorce 1mdash50

FBAR Penalties and Divorce Disclosures 1mdash50

Alimony Income 1mdash51

Alimony ndash Timing Timing Timing 1mdash51

Minister Housing Allowance 1mdash51

Minister Housing Allowance 1mdash51

TCJA ndash Comparing Top Income Tax Rates 1mdash51

TCJA ndash Individual Income Tax Rates (Single) 1mdash52

TCJA ndash Individual Income Tax Rates (HH) 1mdash52

TCJA ndash Individual Income Tax Rates (MFJ) 1mdash52

TCJA ndash Individual Income Tax Rates (MFS) 1mdash53

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiv

Rates ndash Before and After TCJA 1mdash53

Backup Withholding 1mdash53

Kiddie Tax 1mdash54

Kiddie Tax Basics 1mdash54

TCJA ndash Kiddie Tax 1mdash54

Kiddie Tax ndash Prior (2017) TCJA (2018-2025) 1mdash54

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA ndash Kiddie Tax (Estate and Trust) Rates 1mdash55

TCJA ndashEstate and Trust Rates ndash Ordinary Income 1mdash56

Kiddie Tax ndash Higher or Lower Under TCJA 1mdash56

Capital Gains Rates (Non-Corporate) 1mdash58

Kiddie Tax on Capital Gains Income ndash Higher or Lower Under TCJA 1mdash58

NIIT ndash Investment by Parent vs Child 1mdash59

Parent vs Child Investing 1mdash59

Capital Gains Rates (Non-Corporate) 1mdash60

Top Investment Income Tax Rates 1mdash61

TCJA ndash Standard Deduction 1mdash61

TCJA ndash Percent of Itemizers 1mdash62

Standard Deduction Planning 1mdash62

Standard Deduction Planning ndash No DAF vs DAF 1mdash63

TCJA ndash Personal Exemption Deduction 1mdash63

Personal Exemption Remains Relevant 1mdash64

Personal Exemption and Form 8332 1mdash64

Head of Household ndash Due Diligence 1mdash64

TCJA ndash Child Family Tax Credit 1mdash64

Child Tax Credit ndash Compliance Issues 1mdash64

Child Tax Credit Planning 1mdash65

TCJA ndash Pease Limitation Suspended 1mdash65

3 Classes of Rich ndash Super Medium amp Poor 1mdash65

TCJA ndash Itemized Deduction for Medical 1mdash66

TCJA ndash Itemized Deduction for Medical 1mdash66

Health Savings Accounts 1mdash66

TCJA ndash Itemized Deduction for State amp Local Taxes 1mdash67

TCJA ndash Itemized Deduction for SALT 1mdash67

TCJA ndash SALT ndash State Workarounds 1mdash67

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

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2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

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2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

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2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

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Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

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2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

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2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

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2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

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2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

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2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

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2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

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2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 2: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

(Complete with Tax Cuts and Jobs Act)

Bradley Burnett JD LLM (Taxation)

bradleybradleyburnettcom

Bradley Burnett Tax Seminars Ltd

BradleyBurnettTaxSeminarscom

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Disclaimer

These seminar materials are intended to provide seminar participants with guidance in federal tax law matters The materials and related presentation(s) do not constitute and should not be treated as professional advice regarding the use of any particular tax treatment of the consequences associated with any technique Every effort has been made to ensure the accuracy of these materials Bradley Burnett Tax Seminars Ltd Bradley Burnett the sponsoring organization(s) the marketing organization and any others associated with the dissemination of these materials and related presentation(s) do not assume responsibility for any individualrsquos reliance upon the written or oral information provided in the materials or during the seminar Readers of the materials and seminar participants must independently verify all statements made before applying them to a particular fact situation and independently determine the impact of any particular tax planning or compliance technique implementing it

I acknowledge and thank Mary Neely from Springfield Missouri for her extraordinary work navigating the word processing software and assembling and formatting the materials

I also acknowledge and thank my friend Greg White CPA from Seattle Washington for his intelligent tax-related banter and capable occasional critique of materials This is a far better book because of him

Bradley Burnett

ldquoAs I sit looking at the place the piano used to be before I had to sell it to pay my income tax

I find myself in a thoughtful moodrdquo

PG Wodehouse

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

i

copy 2019 Bradley Burnett Tax Seminars Ltd

Table of Contents

Chapter 1 Individual 1mdashi

Chapter 2 Real Estate 2mdashi

Chapter 3 Investment 3mdashi

Chapter 4 Individual Retirement Accounts 4mdashi

Chapter 5 Estate Gift and Fiduciary 5mdashi

Chapter 6 Business and Cost Recovery 6mdashi

Chapter 7 Fringe Benefit and Qualified Retirement Plans 7mdashi

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099 8mdashi

Chapter 9 C Corporations and Exempt Organizations 9mdashi

Chapter 10 S Corporations 10mdashi

Chapter 11 Disregarded Entities 11mdashi

Chapter 12 Partnerships and LLCs 12mdashi

Chapter 13 IRS Practice and Procedure 13mdashi

Chapter 14 Special Topics 14mdashi

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashi

Chapter 1 Individual

Table of Contents

Charitable Contribution Substantiation and Reporting 1mdash1

Charitable Contribution - Substantiation 1mdash1

Substantiation 1mdash1

Out-of-Pocket Expenses for Volunteer Work 1mdash1

Tax Exempt Organization Search (TEOS) 1mdash2

Tax Cuts Jobs Act (TCJA) Charitable Contributions 1mdash3

TCJA - Cash Contributions 1mdash3

TCJA - Contributions 1mdash3

TCJA ndash Charitable Contributions 1mdash4

TCJA ndash Itemized Deduction for Charitable Gifts 1mdash4

Intent 1mdash4

Donation of Easement - Fair Market Value 1mdash4

Fair Market Value 1mdash4

Donation of Easement 1mdash5

What Does Donor Expect to Receive in Return 1mdash5

Quid Pro Quo 1mdash6

Written Contemporaneous Acknowledgement 1mdash7

Charitable Contributions At Least Some Proof Is Needed 1mdash8

IRS Form 8283 1mdash10

IRS Form 8283 ndash Timeliness 1mdash10

IRS Form 8283 - Who Must File 1mdash11

IRS Form 8283 ndash Logistics 1mdash12

Form 8283 - Page 1 Part I 1mdash12

Form 8283 - Page 1 Part II 1mdash12

Form 8283 - Page 2 Part I 1mdash13

Non-Cash Contributions - Aggregation of Similar Items by Category 1mdash13

Form 8283 - Page 2 Part II 1mdash14

Appraisal - Substantial Compliance 1mdash15

Form 8283 - Page 2 Part IV 1mdash15

Appraisal Rules - No Substantial Compliance 1mdash15

Non-Cash Contributions - Charitable Fundraising Campaigns 1mdash16

Charitable Fundraising Campaigns 1mdash16

sect170(f)(12) - Vehicles Boats and Airplanes 1mdash17

Qualified Charitable Distributions - From IRAs 1mdash17

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashii

New SALT Cap 1mdash18

SALT Cap Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Exception to New SALT Cap - Contributions by Business 1mdash20

Charitable Contribution - Substantiation 1mdash20

Rates ndash Before and After TCJA 1mdash20

Wage Withholding 1mdash21

Underpayment of Individual Income Tax 1mdash22

Waiver of 2018 Underpayment of Estimated Tax Penalty 1mdash22

Avoiding Underpayment of Estimated Tax Penalty for 2018 1mdash22

IRS Interest 1mdash23

2019 Withholding and Estimated Tax 1mdash23

IRS Issues Explanations for Denial of Deductions Under TCJA 1mdash23

New SALT Cap 1mdash24

New SALT Cap 1mdash25

SALT Cap Workarounds 1mdash25

Government Response to SALT Workarounds 1mdash25

Effect of New SALT Cap on Form 1041 1mdash26

Exception to New SALT Cap Contributions by Business 1mdash26

Divorce Alimony and Property Settlements After TCJA 1mdash30

Divorce Rate 1mdash30

Alimony ndash Compliance Gap 1mdash31

TCJA ndash Alimony 1mdash32

2019 Form 1040 ndash Alimony 1mdash32

TCJA Divorce Filing Firestorm 1mdash33

Alimony ndash State Specific Formulas 1mdash33

Alimony ndash Timing Timing Timing 1mdash33

Alimony ndash Pre-2018 Agreement - Dragged Back Into Court 1mdash33

TCJA ndash Alimony Transition Rule 1mdash34

TCJA ndash Alimony Trusts Eliminated 1mdash35

Alimony Trusts Grandfathered In 1mdash35

Alimony Trust Margarita or Both 1mdash35

TCJA ndash Alimony ndash The Ultimate Question 1mdash36

Divorce Planning ndash Punch List 1mdash36

Marriage Penalty 1mdash37

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiii

Marriage Penalty and Tax Rates 1mdash37

Divorce Planning ndash Punch List 1mdash38

TCJA ndash Personal Exemption Deduction 1mdash39

TCJA ndash Child Family Tax Credit 1mdash39

Child Tax Credit ndash Compliance Issues 1mdash40

Child Tax Credit Planning 1mdash40

Personal Exemption Remains Relevant 1mdash40

Personal Exemption and Form 8332 1mdash40

Form 8332 - Do It Right the First Time 1mdash41

Parent vs Child Investing 1mdash41

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash42

If Pay Down Acquisition Debt Itrsquos Gone 1mdash43

TCJA ndash Home Equity Debt 1mdash43

TCJA ndash Acquisition Debt 1mdash44

Interest Tracing Rules 1mdash45

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash45

Interest Tracing Rules ndash IRS Notice 89-35 1mdash45

Head of Household ndash Due Diligence 1mdash46

Other New Divorce Developments 1mdash46

Filing Status 1mdash47

Alimony or Not 1mdash47

Child Support vs Alimony 1mdash48

Divorce and S Corp Stock 1mdash49

Divorce Related Employment Restrictions on S Stock - Not Second Class of Stock 1mdash49

Innocent Spouse Relief 1mdash49

IRS Collections - Ex-Spouses After Divorce 1mdash50

FBAR Penalties and Divorce Disclosures 1mdash50

Alimony Income 1mdash51

Alimony ndash Timing Timing Timing 1mdash51

Minister Housing Allowance 1mdash51

Minister Housing Allowance 1mdash51

TCJA ndash Comparing Top Income Tax Rates 1mdash51

TCJA ndash Individual Income Tax Rates (Single) 1mdash52

TCJA ndash Individual Income Tax Rates (HH) 1mdash52

TCJA ndash Individual Income Tax Rates (MFJ) 1mdash52

TCJA ndash Individual Income Tax Rates (MFS) 1mdash53

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiv

Rates ndash Before and After TCJA 1mdash53

Backup Withholding 1mdash53

Kiddie Tax 1mdash54

Kiddie Tax Basics 1mdash54

TCJA ndash Kiddie Tax 1mdash54

Kiddie Tax ndash Prior (2017) TCJA (2018-2025) 1mdash54

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA ndash Kiddie Tax (Estate and Trust) Rates 1mdash55

TCJA ndashEstate and Trust Rates ndash Ordinary Income 1mdash56

Kiddie Tax ndash Higher or Lower Under TCJA 1mdash56

Capital Gains Rates (Non-Corporate) 1mdash58

Kiddie Tax on Capital Gains Income ndash Higher or Lower Under TCJA 1mdash58

NIIT ndash Investment by Parent vs Child 1mdash59

Parent vs Child Investing 1mdash59

Capital Gains Rates (Non-Corporate) 1mdash60

Top Investment Income Tax Rates 1mdash61

TCJA ndash Standard Deduction 1mdash61

TCJA ndash Percent of Itemizers 1mdash62

Standard Deduction Planning 1mdash62

Standard Deduction Planning ndash No DAF vs DAF 1mdash63

TCJA ndash Personal Exemption Deduction 1mdash63

Personal Exemption Remains Relevant 1mdash64

Personal Exemption and Form 8332 1mdash64

Head of Household ndash Due Diligence 1mdash64

TCJA ndash Child Family Tax Credit 1mdash64

Child Tax Credit ndash Compliance Issues 1mdash64

Child Tax Credit Planning 1mdash65

TCJA ndash Pease Limitation Suspended 1mdash65

3 Classes of Rich ndash Super Medium amp Poor 1mdash65

TCJA ndash Itemized Deduction for Medical 1mdash66

TCJA ndash Itemized Deduction for Medical 1mdash66

Health Savings Accounts 1mdash66

TCJA ndash Itemized Deduction for State amp Local Taxes 1mdash67

TCJA ndash Itemized Deduction for SALT 1mdash67

TCJA ndash SALT ndash State Workarounds 1mdash67

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

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Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

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2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

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2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

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2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

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2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 3: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

Disclaimer

These seminar materials are intended to provide seminar participants with guidance in federal tax law matters The materials and related presentation(s) do not constitute and should not be treated as professional advice regarding the use of any particular tax treatment of the consequences associated with any technique Every effort has been made to ensure the accuracy of these materials Bradley Burnett Tax Seminars Ltd Bradley Burnett the sponsoring organization(s) the marketing organization and any others associated with the dissemination of these materials and related presentation(s) do not assume responsibility for any individualrsquos reliance upon the written or oral information provided in the materials or during the seminar Readers of the materials and seminar participants must independently verify all statements made before applying them to a particular fact situation and independently determine the impact of any particular tax planning or compliance technique implementing it

I acknowledge and thank Mary Neely from Springfield Missouri for her extraordinary work navigating the word processing software and assembling and formatting the materials

I also acknowledge and thank my friend Greg White CPA from Seattle Washington for his intelligent tax-related banter and capable occasional critique of materials This is a far better book because of him

Bradley Burnett

ldquoAs I sit looking at the place the piano used to be before I had to sell it to pay my income tax

I find myself in a thoughtful moodrdquo

PG Wodehouse

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

i

copy 2019 Bradley Burnett Tax Seminars Ltd

Table of Contents

Chapter 1 Individual 1mdashi

Chapter 2 Real Estate 2mdashi

Chapter 3 Investment 3mdashi

Chapter 4 Individual Retirement Accounts 4mdashi

Chapter 5 Estate Gift and Fiduciary 5mdashi

Chapter 6 Business and Cost Recovery 6mdashi

Chapter 7 Fringe Benefit and Qualified Retirement Plans 7mdashi

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099 8mdashi

Chapter 9 C Corporations and Exempt Organizations 9mdashi

Chapter 10 S Corporations 10mdashi

Chapter 11 Disregarded Entities 11mdashi

Chapter 12 Partnerships and LLCs 12mdashi

Chapter 13 IRS Practice and Procedure 13mdashi

Chapter 14 Special Topics 14mdashi

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashi

Chapter 1 Individual

Table of Contents

Charitable Contribution Substantiation and Reporting 1mdash1

Charitable Contribution - Substantiation 1mdash1

Substantiation 1mdash1

Out-of-Pocket Expenses for Volunteer Work 1mdash1

Tax Exempt Organization Search (TEOS) 1mdash2

Tax Cuts Jobs Act (TCJA) Charitable Contributions 1mdash3

TCJA - Cash Contributions 1mdash3

TCJA - Contributions 1mdash3

TCJA ndash Charitable Contributions 1mdash4

TCJA ndash Itemized Deduction for Charitable Gifts 1mdash4

Intent 1mdash4

Donation of Easement - Fair Market Value 1mdash4

Fair Market Value 1mdash4

Donation of Easement 1mdash5

What Does Donor Expect to Receive in Return 1mdash5

Quid Pro Quo 1mdash6

Written Contemporaneous Acknowledgement 1mdash7

Charitable Contributions At Least Some Proof Is Needed 1mdash8

IRS Form 8283 1mdash10

IRS Form 8283 ndash Timeliness 1mdash10

IRS Form 8283 - Who Must File 1mdash11

IRS Form 8283 ndash Logistics 1mdash12

Form 8283 - Page 1 Part I 1mdash12

Form 8283 - Page 1 Part II 1mdash12

Form 8283 - Page 2 Part I 1mdash13

Non-Cash Contributions - Aggregation of Similar Items by Category 1mdash13

Form 8283 - Page 2 Part II 1mdash14

Appraisal - Substantial Compliance 1mdash15

Form 8283 - Page 2 Part IV 1mdash15

Appraisal Rules - No Substantial Compliance 1mdash15

Non-Cash Contributions - Charitable Fundraising Campaigns 1mdash16

Charitable Fundraising Campaigns 1mdash16

sect170(f)(12) - Vehicles Boats and Airplanes 1mdash17

Qualified Charitable Distributions - From IRAs 1mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashii

New SALT Cap 1mdash18

SALT Cap Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Exception to New SALT Cap - Contributions by Business 1mdash20

Charitable Contribution - Substantiation 1mdash20

Rates ndash Before and After TCJA 1mdash20

Wage Withholding 1mdash21

Underpayment of Individual Income Tax 1mdash22

Waiver of 2018 Underpayment of Estimated Tax Penalty 1mdash22

Avoiding Underpayment of Estimated Tax Penalty for 2018 1mdash22

IRS Interest 1mdash23

2019 Withholding and Estimated Tax 1mdash23

IRS Issues Explanations for Denial of Deductions Under TCJA 1mdash23

New SALT Cap 1mdash24

New SALT Cap 1mdash25

SALT Cap Workarounds 1mdash25

Government Response to SALT Workarounds 1mdash25

Effect of New SALT Cap on Form 1041 1mdash26

Exception to New SALT Cap Contributions by Business 1mdash26

Divorce Alimony and Property Settlements After TCJA 1mdash30

Divorce Rate 1mdash30

Alimony ndash Compliance Gap 1mdash31

TCJA ndash Alimony 1mdash32

2019 Form 1040 ndash Alimony 1mdash32

TCJA Divorce Filing Firestorm 1mdash33

Alimony ndash State Specific Formulas 1mdash33

Alimony ndash Timing Timing Timing 1mdash33

Alimony ndash Pre-2018 Agreement - Dragged Back Into Court 1mdash33

TCJA ndash Alimony Transition Rule 1mdash34

TCJA ndash Alimony Trusts Eliminated 1mdash35

Alimony Trusts Grandfathered In 1mdash35

Alimony Trust Margarita or Both 1mdash35

TCJA ndash Alimony ndash The Ultimate Question 1mdash36

Divorce Planning ndash Punch List 1mdash36

Marriage Penalty 1mdash37

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiii

Marriage Penalty and Tax Rates 1mdash37

Divorce Planning ndash Punch List 1mdash38

TCJA ndash Personal Exemption Deduction 1mdash39

TCJA ndash Child Family Tax Credit 1mdash39

Child Tax Credit ndash Compliance Issues 1mdash40

Child Tax Credit Planning 1mdash40

Personal Exemption Remains Relevant 1mdash40

Personal Exemption and Form 8332 1mdash40

Form 8332 - Do It Right the First Time 1mdash41

Parent vs Child Investing 1mdash41

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash42

If Pay Down Acquisition Debt Itrsquos Gone 1mdash43

TCJA ndash Home Equity Debt 1mdash43

TCJA ndash Acquisition Debt 1mdash44

Interest Tracing Rules 1mdash45

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash45

Interest Tracing Rules ndash IRS Notice 89-35 1mdash45

Head of Household ndash Due Diligence 1mdash46

Other New Divorce Developments 1mdash46

Filing Status 1mdash47

Alimony or Not 1mdash47

Child Support vs Alimony 1mdash48

Divorce and S Corp Stock 1mdash49

Divorce Related Employment Restrictions on S Stock - Not Second Class of Stock 1mdash49

Innocent Spouse Relief 1mdash49

IRS Collections - Ex-Spouses After Divorce 1mdash50

FBAR Penalties and Divorce Disclosures 1mdash50

Alimony Income 1mdash51

Alimony ndash Timing Timing Timing 1mdash51

Minister Housing Allowance 1mdash51

Minister Housing Allowance 1mdash51

TCJA ndash Comparing Top Income Tax Rates 1mdash51

TCJA ndash Individual Income Tax Rates (Single) 1mdash52

TCJA ndash Individual Income Tax Rates (HH) 1mdash52

TCJA ndash Individual Income Tax Rates (MFJ) 1mdash52

TCJA ndash Individual Income Tax Rates (MFS) 1mdash53

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiv

Rates ndash Before and After TCJA 1mdash53

Backup Withholding 1mdash53

Kiddie Tax 1mdash54

Kiddie Tax Basics 1mdash54

TCJA ndash Kiddie Tax 1mdash54

Kiddie Tax ndash Prior (2017) TCJA (2018-2025) 1mdash54

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA ndash Kiddie Tax (Estate and Trust) Rates 1mdash55

TCJA ndashEstate and Trust Rates ndash Ordinary Income 1mdash56

Kiddie Tax ndash Higher or Lower Under TCJA 1mdash56

Capital Gains Rates (Non-Corporate) 1mdash58

Kiddie Tax on Capital Gains Income ndash Higher or Lower Under TCJA 1mdash58

NIIT ndash Investment by Parent vs Child 1mdash59

Parent vs Child Investing 1mdash59

Capital Gains Rates (Non-Corporate) 1mdash60

Top Investment Income Tax Rates 1mdash61

TCJA ndash Standard Deduction 1mdash61

TCJA ndash Percent of Itemizers 1mdash62

Standard Deduction Planning 1mdash62

Standard Deduction Planning ndash No DAF vs DAF 1mdash63

TCJA ndash Personal Exemption Deduction 1mdash63

Personal Exemption Remains Relevant 1mdash64

Personal Exemption and Form 8332 1mdash64

Head of Household ndash Due Diligence 1mdash64

TCJA ndash Child Family Tax Credit 1mdash64

Child Tax Credit ndash Compliance Issues 1mdash64

Child Tax Credit Planning 1mdash65

TCJA ndash Pease Limitation Suspended 1mdash65

3 Classes of Rich ndash Super Medium amp Poor 1mdash65

TCJA ndash Itemized Deduction for Medical 1mdash66

TCJA ndash Itemized Deduction for Medical 1mdash66

Health Savings Accounts 1mdash66

TCJA ndash Itemized Deduction for State amp Local Taxes 1mdash67

TCJA ndash Itemized Deduction for SALT 1mdash67

TCJA ndash SALT ndash State Workarounds 1mdash67

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

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2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

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2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

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2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

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2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

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2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

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2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

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2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 4: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

i

copy 2019 Bradley Burnett Tax Seminars Ltd

Table of Contents

Chapter 1 Individual 1mdashi

Chapter 2 Real Estate 2mdashi

Chapter 3 Investment 3mdashi

Chapter 4 Individual Retirement Accounts 4mdashi

Chapter 5 Estate Gift and Fiduciary 5mdashi

Chapter 6 Business and Cost Recovery 6mdashi

Chapter 7 Fringe Benefit and Qualified Retirement Plans 7mdashi

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099 8mdashi

Chapter 9 C Corporations and Exempt Organizations 9mdashi

Chapter 10 S Corporations 10mdashi

Chapter 11 Disregarded Entities 11mdashi

Chapter 12 Partnerships and LLCs 12mdashi

Chapter 13 IRS Practice and Procedure 13mdashi

Chapter 14 Special Topics 14mdashi

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashi

Chapter 1 Individual

Table of Contents

Charitable Contribution Substantiation and Reporting 1mdash1

Charitable Contribution - Substantiation 1mdash1

Substantiation 1mdash1

Out-of-Pocket Expenses for Volunteer Work 1mdash1

Tax Exempt Organization Search (TEOS) 1mdash2

Tax Cuts Jobs Act (TCJA) Charitable Contributions 1mdash3

TCJA - Cash Contributions 1mdash3

TCJA - Contributions 1mdash3

TCJA ndash Charitable Contributions 1mdash4

TCJA ndash Itemized Deduction for Charitable Gifts 1mdash4

Intent 1mdash4

Donation of Easement - Fair Market Value 1mdash4

Fair Market Value 1mdash4

Donation of Easement 1mdash5

What Does Donor Expect to Receive in Return 1mdash5

Quid Pro Quo 1mdash6

Written Contemporaneous Acknowledgement 1mdash7

Charitable Contributions At Least Some Proof Is Needed 1mdash8

IRS Form 8283 1mdash10

IRS Form 8283 ndash Timeliness 1mdash10

IRS Form 8283 - Who Must File 1mdash11

IRS Form 8283 ndash Logistics 1mdash12

Form 8283 - Page 1 Part I 1mdash12

Form 8283 - Page 1 Part II 1mdash12

Form 8283 - Page 2 Part I 1mdash13

Non-Cash Contributions - Aggregation of Similar Items by Category 1mdash13

Form 8283 - Page 2 Part II 1mdash14

Appraisal - Substantial Compliance 1mdash15

Form 8283 - Page 2 Part IV 1mdash15

Appraisal Rules - No Substantial Compliance 1mdash15

Non-Cash Contributions - Charitable Fundraising Campaigns 1mdash16

Charitable Fundraising Campaigns 1mdash16

sect170(f)(12) - Vehicles Boats and Airplanes 1mdash17

Qualified Charitable Distributions - From IRAs 1mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashii

New SALT Cap 1mdash18

SALT Cap Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Exception to New SALT Cap - Contributions by Business 1mdash20

Charitable Contribution - Substantiation 1mdash20

Rates ndash Before and After TCJA 1mdash20

Wage Withholding 1mdash21

Underpayment of Individual Income Tax 1mdash22

Waiver of 2018 Underpayment of Estimated Tax Penalty 1mdash22

Avoiding Underpayment of Estimated Tax Penalty for 2018 1mdash22

IRS Interest 1mdash23

2019 Withholding and Estimated Tax 1mdash23

IRS Issues Explanations for Denial of Deductions Under TCJA 1mdash23

New SALT Cap 1mdash24

New SALT Cap 1mdash25

SALT Cap Workarounds 1mdash25

Government Response to SALT Workarounds 1mdash25

Effect of New SALT Cap on Form 1041 1mdash26

Exception to New SALT Cap Contributions by Business 1mdash26

Divorce Alimony and Property Settlements After TCJA 1mdash30

Divorce Rate 1mdash30

Alimony ndash Compliance Gap 1mdash31

TCJA ndash Alimony 1mdash32

2019 Form 1040 ndash Alimony 1mdash32

TCJA Divorce Filing Firestorm 1mdash33

Alimony ndash State Specific Formulas 1mdash33

Alimony ndash Timing Timing Timing 1mdash33

Alimony ndash Pre-2018 Agreement - Dragged Back Into Court 1mdash33

TCJA ndash Alimony Transition Rule 1mdash34

TCJA ndash Alimony Trusts Eliminated 1mdash35

Alimony Trusts Grandfathered In 1mdash35

Alimony Trust Margarita or Both 1mdash35

TCJA ndash Alimony ndash The Ultimate Question 1mdash36

Divorce Planning ndash Punch List 1mdash36

Marriage Penalty 1mdash37

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiii

Marriage Penalty and Tax Rates 1mdash37

Divorce Planning ndash Punch List 1mdash38

TCJA ndash Personal Exemption Deduction 1mdash39

TCJA ndash Child Family Tax Credit 1mdash39

Child Tax Credit ndash Compliance Issues 1mdash40

Child Tax Credit Planning 1mdash40

Personal Exemption Remains Relevant 1mdash40

Personal Exemption and Form 8332 1mdash40

Form 8332 - Do It Right the First Time 1mdash41

Parent vs Child Investing 1mdash41

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash42

If Pay Down Acquisition Debt Itrsquos Gone 1mdash43

TCJA ndash Home Equity Debt 1mdash43

TCJA ndash Acquisition Debt 1mdash44

Interest Tracing Rules 1mdash45

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash45

Interest Tracing Rules ndash IRS Notice 89-35 1mdash45

Head of Household ndash Due Diligence 1mdash46

Other New Divorce Developments 1mdash46

Filing Status 1mdash47

Alimony or Not 1mdash47

Child Support vs Alimony 1mdash48

Divorce and S Corp Stock 1mdash49

Divorce Related Employment Restrictions on S Stock - Not Second Class of Stock 1mdash49

Innocent Spouse Relief 1mdash49

IRS Collections - Ex-Spouses After Divorce 1mdash50

FBAR Penalties and Divorce Disclosures 1mdash50

Alimony Income 1mdash51

Alimony ndash Timing Timing Timing 1mdash51

Minister Housing Allowance 1mdash51

Minister Housing Allowance 1mdash51

TCJA ndash Comparing Top Income Tax Rates 1mdash51

TCJA ndash Individual Income Tax Rates (Single) 1mdash52

TCJA ndash Individual Income Tax Rates (HH) 1mdash52

TCJA ndash Individual Income Tax Rates (MFJ) 1mdash52

TCJA ndash Individual Income Tax Rates (MFS) 1mdash53

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiv

Rates ndash Before and After TCJA 1mdash53

Backup Withholding 1mdash53

Kiddie Tax 1mdash54

Kiddie Tax Basics 1mdash54

TCJA ndash Kiddie Tax 1mdash54

Kiddie Tax ndash Prior (2017) TCJA (2018-2025) 1mdash54

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA ndash Kiddie Tax (Estate and Trust) Rates 1mdash55

TCJA ndashEstate and Trust Rates ndash Ordinary Income 1mdash56

Kiddie Tax ndash Higher or Lower Under TCJA 1mdash56

Capital Gains Rates (Non-Corporate) 1mdash58

Kiddie Tax on Capital Gains Income ndash Higher or Lower Under TCJA 1mdash58

NIIT ndash Investment by Parent vs Child 1mdash59

Parent vs Child Investing 1mdash59

Capital Gains Rates (Non-Corporate) 1mdash60

Top Investment Income Tax Rates 1mdash61

TCJA ndash Standard Deduction 1mdash61

TCJA ndash Percent of Itemizers 1mdash62

Standard Deduction Planning 1mdash62

Standard Deduction Planning ndash No DAF vs DAF 1mdash63

TCJA ndash Personal Exemption Deduction 1mdash63

Personal Exemption Remains Relevant 1mdash64

Personal Exemption and Form 8332 1mdash64

Head of Household ndash Due Diligence 1mdash64

TCJA ndash Child Family Tax Credit 1mdash64

Child Tax Credit ndash Compliance Issues 1mdash64

Child Tax Credit Planning 1mdash65

TCJA ndash Pease Limitation Suspended 1mdash65

3 Classes of Rich ndash Super Medium amp Poor 1mdash65

TCJA ndash Itemized Deduction for Medical 1mdash66

TCJA ndash Itemized Deduction for Medical 1mdash66

Health Savings Accounts 1mdash66

TCJA ndash Itemized Deduction for State amp Local Taxes 1mdash67

TCJA ndash Itemized Deduction for SALT 1mdash67

TCJA ndash SALT ndash State Workarounds 1mdash67

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

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2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

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2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

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2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

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2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

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2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

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2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 5: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashi

Chapter 1 Individual

Table of Contents

Charitable Contribution Substantiation and Reporting 1mdash1

Charitable Contribution - Substantiation 1mdash1

Substantiation 1mdash1

Out-of-Pocket Expenses for Volunteer Work 1mdash1

Tax Exempt Organization Search (TEOS) 1mdash2

Tax Cuts Jobs Act (TCJA) Charitable Contributions 1mdash3

TCJA - Cash Contributions 1mdash3

TCJA - Contributions 1mdash3

TCJA ndash Charitable Contributions 1mdash4

TCJA ndash Itemized Deduction for Charitable Gifts 1mdash4

Intent 1mdash4

Donation of Easement - Fair Market Value 1mdash4

Fair Market Value 1mdash4

Donation of Easement 1mdash5

What Does Donor Expect to Receive in Return 1mdash5

Quid Pro Quo 1mdash6

Written Contemporaneous Acknowledgement 1mdash7

Charitable Contributions At Least Some Proof Is Needed 1mdash8

IRS Form 8283 1mdash10

IRS Form 8283 ndash Timeliness 1mdash10

IRS Form 8283 - Who Must File 1mdash11

IRS Form 8283 ndash Logistics 1mdash12

Form 8283 - Page 1 Part I 1mdash12

Form 8283 - Page 1 Part II 1mdash12

Form 8283 - Page 2 Part I 1mdash13

Non-Cash Contributions - Aggregation of Similar Items by Category 1mdash13

Form 8283 - Page 2 Part II 1mdash14

Appraisal - Substantial Compliance 1mdash15

Form 8283 - Page 2 Part IV 1mdash15

Appraisal Rules - No Substantial Compliance 1mdash15

Non-Cash Contributions - Charitable Fundraising Campaigns 1mdash16

Charitable Fundraising Campaigns 1mdash16

sect170(f)(12) - Vehicles Boats and Airplanes 1mdash17

Qualified Charitable Distributions - From IRAs 1mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashii

New SALT Cap 1mdash18

SALT Cap Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Exception to New SALT Cap - Contributions by Business 1mdash20

Charitable Contribution - Substantiation 1mdash20

Rates ndash Before and After TCJA 1mdash20

Wage Withholding 1mdash21

Underpayment of Individual Income Tax 1mdash22

Waiver of 2018 Underpayment of Estimated Tax Penalty 1mdash22

Avoiding Underpayment of Estimated Tax Penalty for 2018 1mdash22

IRS Interest 1mdash23

2019 Withholding and Estimated Tax 1mdash23

IRS Issues Explanations for Denial of Deductions Under TCJA 1mdash23

New SALT Cap 1mdash24

New SALT Cap 1mdash25

SALT Cap Workarounds 1mdash25

Government Response to SALT Workarounds 1mdash25

Effect of New SALT Cap on Form 1041 1mdash26

Exception to New SALT Cap Contributions by Business 1mdash26

Divorce Alimony and Property Settlements After TCJA 1mdash30

Divorce Rate 1mdash30

Alimony ndash Compliance Gap 1mdash31

TCJA ndash Alimony 1mdash32

2019 Form 1040 ndash Alimony 1mdash32

TCJA Divorce Filing Firestorm 1mdash33

Alimony ndash State Specific Formulas 1mdash33

Alimony ndash Timing Timing Timing 1mdash33

Alimony ndash Pre-2018 Agreement - Dragged Back Into Court 1mdash33

TCJA ndash Alimony Transition Rule 1mdash34

TCJA ndash Alimony Trusts Eliminated 1mdash35

Alimony Trusts Grandfathered In 1mdash35

Alimony Trust Margarita or Both 1mdash35

TCJA ndash Alimony ndash The Ultimate Question 1mdash36

Divorce Planning ndash Punch List 1mdash36

Marriage Penalty 1mdash37

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiii

Marriage Penalty and Tax Rates 1mdash37

Divorce Planning ndash Punch List 1mdash38

TCJA ndash Personal Exemption Deduction 1mdash39

TCJA ndash Child Family Tax Credit 1mdash39

Child Tax Credit ndash Compliance Issues 1mdash40

Child Tax Credit Planning 1mdash40

Personal Exemption Remains Relevant 1mdash40

Personal Exemption and Form 8332 1mdash40

Form 8332 - Do It Right the First Time 1mdash41

Parent vs Child Investing 1mdash41

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash42

If Pay Down Acquisition Debt Itrsquos Gone 1mdash43

TCJA ndash Home Equity Debt 1mdash43

TCJA ndash Acquisition Debt 1mdash44

Interest Tracing Rules 1mdash45

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash45

Interest Tracing Rules ndash IRS Notice 89-35 1mdash45

Head of Household ndash Due Diligence 1mdash46

Other New Divorce Developments 1mdash46

Filing Status 1mdash47

Alimony or Not 1mdash47

Child Support vs Alimony 1mdash48

Divorce and S Corp Stock 1mdash49

Divorce Related Employment Restrictions on S Stock - Not Second Class of Stock 1mdash49

Innocent Spouse Relief 1mdash49

IRS Collections - Ex-Spouses After Divorce 1mdash50

FBAR Penalties and Divorce Disclosures 1mdash50

Alimony Income 1mdash51

Alimony ndash Timing Timing Timing 1mdash51

Minister Housing Allowance 1mdash51

Minister Housing Allowance 1mdash51

TCJA ndash Comparing Top Income Tax Rates 1mdash51

TCJA ndash Individual Income Tax Rates (Single) 1mdash52

TCJA ndash Individual Income Tax Rates (HH) 1mdash52

TCJA ndash Individual Income Tax Rates (MFJ) 1mdash52

TCJA ndash Individual Income Tax Rates (MFS) 1mdash53

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiv

Rates ndash Before and After TCJA 1mdash53

Backup Withholding 1mdash53

Kiddie Tax 1mdash54

Kiddie Tax Basics 1mdash54

TCJA ndash Kiddie Tax 1mdash54

Kiddie Tax ndash Prior (2017) TCJA (2018-2025) 1mdash54

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA ndash Kiddie Tax (Estate and Trust) Rates 1mdash55

TCJA ndashEstate and Trust Rates ndash Ordinary Income 1mdash56

Kiddie Tax ndash Higher or Lower Under TCJA 1mdash56

Capital Gains Rates (Non-Corporate) 1mdash58

Kiddie Tax on Capital Gains Income ndash Higher or Lower Under TCJA 1mdash58

NIIT ndash Investment by Parent vs Child 1mdash59

Parent vs Child Investing 1mdash59

Capital Gains Rates (Non-Corporate) 1mdash60

Top Investment Income Tax Rates 1mdash61

TCJA ndash Standard Deduction 1mdash61

TCJA ndash Percent of Itemizers 1mdash62

Standard Deduction Planning 1mdash62

Standard Deduction Planning ndash No DAF vs DAF 1mdash63

TCJA ndash Personal Exemption Deduction 1mdash63

Personal Exemption Remains Relevant 1mdash64

Personal Exemption and Form 8332 1mdash64

Head of Household ndash Due Diligence 1mdash64

TCJA ndash Child Family Tax Credit 1mdash64

Child Tax Credit ndash Compliance Issues 1mdash64

Child Tax Credit Planning 1mdash65

TCJA ndash Pease Limitation Suspended 1mdash65

3 Classes of Rich ndash Super Medium amp Poor 1mdash65

TCJA ndash Itemized Deduction for Medical 1mdash66

TCJA ndash Itemized Deduction for Medical 1mdash66

Health Savings Accounts 1mdash66

TCJA ndash Itemized Deduction for State amp Local Taxes 1mdash67

TCJA ndash Itemized Deduction for SALT 1mdash67

TCJA ndash SALT ndash State Workarounds 1mdash67

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

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2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

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2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

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2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

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2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

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2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

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2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

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2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

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2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

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Page 6: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashii

New SALT Cap 1mdash18

SALT Cap Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Government Response to SALT Workarounds 1mdash19

Exception to New SALT Cap - Contributions by Business 1mdash20

Charitable Contribution - Substantiation 1mdash20

Rates ndash Before and After TCJA 1mdash20

Wage Withholding 1mdash21

Underpayment of Individual Income Tax 1mdash22

Waiver of 2018 Underpayment of Estimated Tax Penalty 1mdash22

Avoiding Underpayment of Estimated Tax Penalty for 2018 1mdash22

IRS Interest 1mdash23

2019 Withholding and Estimated Tax 1mdash23

IRS Issues Explanations for Denial of Deductions Under TCJA 1mdash23

New SALT Cap 1mdash24

New SALT Cap 1mdash25

SALT Cap Workarounds 1mdash25

Government Response to SALT Workarounds 1mdash25

Effect of New SALT Cap on Form 1041 1mdash26

Exception to New SALT Cap Contributions by Business 1mdash26

Divorce Alimony and Property Settlements After TCJA 1mdash30

Divorce Rate 1mdash30

Alimony ndash Compliance Gap 1mdash31

TCJA ndash Alimony 1mdash32

2019 Form 1040 ndash Alimony 1mdash32

TCJA Divorce Filing Firestorm 1mdash33

Alimony ndash State Specific Formulas 1mdash33

Alimony ndash Timing Timing Timing 1mdash33

Alimony ndash Pre-2018 Agreement - Dragged Back Into Court 1mdash33

TCJA ndash Alimony Transition Rule 1mdash34

TCJA ndash Alimony Trusts Eliminated 1mdash35

Alimony Trusts Grandfathered In 1mdash35

Alimony Trust Margarita or Both 1mdash35

TCJA ndash Alimony ndash The Ultimate Question 1mdash36

Divorce Planning ndash Punch List 1mdash36

Marriage Penalty 1mdash37

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiii

Marriage Penalty and Tax Rates 1mdash37

Divorce Planning ndash Punch List 1mdash38

TCJA ndash Personal Exemption Deduction 1mdash39

TCJA ndash Child Family Tax Credit 1mdash39

Child Tax Credit ndash Compliance Issues 1mdash40

Child Tax Credit Planning 1mdash40

Personal Exemption Remains Relevant 1mdash40

Personal Exemption and Form 8332 1mdash40

Form 8332 - Do It Right the First Time 1mdash41

Parent vs Child Investing 1mdash41

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash42

If Pay Down Acquisition Debt Itrsquos Gone 1mdash43

TCJA ndash Home Equity Debt 1mdash43

TCJA ndash Acquisition Debt 1mdash44

Interest Tracing Rules 1mdash45

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash45

Interest Tracing Rules ndash IRS Notice 89-35 1mdash45

Head of Household ndash Due Diligence 1mdash46

Other New Divorce Developments 1mdash46

Filing Status 1mdash47

Alimony or Not 1mdash47

Child Support vs Alimony 1mdash48

Divorce and S Corp Stock 1mdash49

Divorce Related Employment Restrictions on S Stock - Not Second Class of Stock 1mdash49

Innocent Spouse Relief 1mdash49

IRS Collections - Ex-Spouses After Divorce 1mdash50

FBAR Penalties and Divorce Disclosures 1mdash50

Alimony Income 1mdash51

Alimony ndash Timing Timing Timing 1mdash51

Minister Housing Allowance 1mdash51

Minister Housing Allowance 1mdash51

TCJA ndash Comparing Top Income Tax Rates 1mdash51

TCJA ndash Individual Income Tax Rates (Single) 1mdash52

TCJA ndash Individual Income Tax Rates (HH) 1mdash52

TCJA ndash Individual Income Tax Rates (MFJ) 1mdash52

TCJA ndash Individual Income Tax Rates (MFS) 1mdash53

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiv

Rates ndash Before and After TCJA 1mdash53

Backup Withholding 1mdash53

Kiddie Tax 1mdash54

Kiddie Tax Basics 1mdash54

TCJA ndash Kiddie Tax 1mdash54

Kiddie Tax ndash Prior (2017) TCJA (2018-2025) 1mdash54

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA ndash Kiddie Tax (Estate and Trust) Rates 1mdash55

TCJA ndashEstate and Trust Rates ndash Ordinary Income 1mdash56

Kiddie Tax ndash Higher or Lower Under TCJA 1mdash56

Capital Gains Rates (Non-Corporate) 1mdash58

Kiddie Tax on Capital Gains Income ndash Higher or Lower Under TCJA 1mdash58

NIIT ndash Investment by Parent vs Child 1mdash59

Parent vs Child Investing 1mdash59

Capital Gains Rates (Non-Corporate) 1mdash60

Top Investment Income Tax Rates 1mdash61

TCJA ndash Standard Deduction 1mdash61

TCJA ndash Percent of Itemizers 1mdash62

Standard Deduction Planning 1mdash62

Standard Deduction Planning ndash No DAF vs DAF 1mdash63

TCJA ndash Personal Exemption Deduction 1mdash63

Personal Exemption Remains Relevant 1mdash64

Personal Exemption and Form 8332 1mdash64

Head of Household ndash Due Diligence 1mdash64

TCJA ndash Child Family Tax Credit 1mdash64

Child Tax Credit ndash Compliance Issues 1mdash64

Child Tax Credit Planning 1mdash65

TCJA ndash Pease Limitation Suspended 1mdash65

3 Classes of Rich ndash Super Medium amp Poor 1mdash65

TCJA ndash Itemized Deduction for Medical 1mdash66

TCJA ndash Itemized Deduction for Medical 1mdash66

Health Savings Accounts 1mdash66

TCJA ndash Itemized Deduction for State amp Local Taxes 1mdash67

TCJA ndash Itemized Deduction for SALT 1mdash67

TCJA ndash SALT ndash State Workarounds 1mdash67

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

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2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

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Page 7: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiii

Marriage Penalty and Tax Rates 1mdash37

Divorce Planning ndash Punch List 1mdash38

TCJA ndash Personal Exemption Deduction 1mdash39

TCJA ndash Child Family Tax Credit 1mdash39

Child Tax Credit ndash Compliance Issues 1mdash40

Child Tax Credit Planning 1mdash40

Personal Exemption Remains Relevant 1mdash40

Personal Exemption and Form 8332 1mdash40

Form 8332 - Do It Right the First Time 1mdash41

Parent vs Child Investing 1mdash41

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash42

If Pay Down Acquisition Debt Itrsquos Gone 1mdash43

TCJA ndash Home Equity Debt 1mdash43

TCJA ndash Acquisition Debt 1mdash44

Interest Tracing Rules 1mdash45

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash45

Interest Tracing Rules ndash IRS Notice 89-35 1mdash45

Head of Household ndash Due Diligence 1mdash46

Other New Divorce Developments 1mdash46

Filing Status 1mdash47

Alimony or Not 1mdash47

Child Support vs Alimony 1mdash48

Divorce and S Corp Stock 1mdash49

Divorce Related Employment Restrictions on S Stock - Not Second Class of Stock 1mdash49

Innocent Spouse Relief 1mdash49

IRS Collections - Ex-Spouses After Divorce 1mdash50

FBAR Penalties and Divorce Disclosures 1mdash50

Alimony Income 1mdash51

Alimony ndash Timing Timing Timing 1mdash51

Minister Housing Allowance 1mdash51

Minister Housing Allowance 1mdash51

TCJA ndash Comparing Top Income Tax Rates 1mdash51

TCJA ndash Individual Income Tax Rates (Single) 1mdash52

TCJA ndash Individual Income Tax Rates (HH) 1mdash52

TCJA ndash Individual Income Tax Rates (MFJ) 1mdash52

TCJA ndash Individual Income Tax Rates (MFS) 1mdash53

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiv

Rates ndash Before and After TCJA 1mdash53

Backup Withholding 1mdash53

Kiddie Tax 1mdash54

Kiddie Tax Basics 1mdash54

TCJA ndash Kiddie Tax 1mdash54

Kiddie Tax ndash Prior (2017) TCJA (2018-2025) 1mdash54

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA ndash Kiddie Tax (Estate and Trust) Rates 1mdash55

TCJA ndashEstate and Trust Rates ndash Ordinary Income 1mdash56

Kiddie Tax ndash Higher or Lower Under TCJA 1mdash56

Capital Gains Rates (Non-Corporate) 1mdash58

Kiddie Tax on Capital Gains Income ndash Higher or Lower Under TCJA 1mdash58

NIIT ndash Investment by Parent vs Child 1mdash59

Parent vs Child Investing 1mdash59

Capital Gains Rates (Non-Corporate) 1mdash60

Top Investment Income Tax Rates 1mdash61

TCJA ndash Standard Deduction 1mdash61

TCJA ndash Percent of Itemizers 1mdash62

Standard Deduction Planning 1mdash62

Standard Deduction Planning ndash No DAF vs DAF 1mdash63

TCJA ndash Personal Exemption Deduction 1mdash63

Personal Exemption Remains Relevant 1mdash64

Personal Exemption and Form 8332 1mdash64

Head of Household ndash Due Diligence 1mdash64

TCJA ndash Child Family Tax Credit 1mdash64

Child Tax Credit ndash Compliance Issues 1mdash64

Child Tax Credit Planning 1mdash65

TCJA ndash Pease Limitation Suspended 1mdash65

3 Classes of Rich ndash Super Medium amp Poor 1mdash65

TCJA ndash Itemized Deduction for Medical 1mdash66

TCJA ndash Itemized Deduction for Medical 1mdash66

Health Savings Accounts 1mdash66

TCJA ndash Itemized Deduction for State amp Local Taxes 1mdash67

TCJA ndash Itemized Deduction for SALT 1mdash67

TCJA ndash SALT ndash State Workarounds 1mdash67

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 8: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashiv

Rates ndash Before and After TCJA 1mdash53

Backup Withholding 1mdash53

Kiddie Tax 1mdash54

Kiddie Tax Basics 1mdash54

TCJA ndash Kiddie Tax 1mdash54

Kiddie Tax ndash Prior (2017) TCJA (2018-2025) 1mdash54

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA Kiddie Tax ndash Effect on Tax Practice 1mdash55

TCJA ndash Kiddie Tax (Estate and Trust) Rates 1mdash55

TCJA ndashEstate and Trust Rates ndash Ordinary Income 1mdash56

Kiddie Tax ndash Higher or Lower Under TCJA 1mdash56

Capital Gains Rates (Non-Corporate) 1mdash58

Kiddie Tax on Capital Gains Income ndash Higher or Lower Under TCJA 1mdash58

NIIT ndash Investment by Parent vs Child 1mdash59

Parent vs Child Investing 1mdash59

Capital Gains Rates (Non-Corporate) 1mdash60

Top Investment Income Tax Rates 1mdash61

TCJA ndash Standard Deduction 1mdash61

TCJA ndash Percent of Itemizers 1mdash62

Standard Deduction Planning 1mdash62

Standard Deduction Planning ndash No DAF vs DAF 1mdash63

TCJA ndash Personal Exemption Deduction 1mdash63

Personal Exemption Remains Relevant 1mdash64

Personal Exemption and Form 8332 1mdash64

Head of Household ndash Due Diligence 1mdash64

TCJA ndash Child Family Tax Credit 1mdash64

Child Tax Credit ndash Compliance Issues 1mdash64

Child Tax Credit Planning 1mdash65

TCJA ndash Pease Limitation Suspended 1mdash65

3 Classes of Rich ndash Super Medium amp Poor 1mdash65

TCJA ndash Itemized Deduction for Medical 1mdash66

TCJA ndash Itemized Deduction for Medical 1mdash66

Health Savings Accounts 1mdash66

TCJA ndash Itemized Deduction for State amp Local Taxes 1mdash67

TCJA ndash Itemized Deduction for SALT 1mdash67

TCJA ndash SALT ndash State Workarounds 1mdash67

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

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2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

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2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

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2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

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2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

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2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

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2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

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2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

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2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

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2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 9: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashv

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest 1mdash68

TCJA ndash Home Mortgage Interest (2018-2025) 1mdash68

Home Mortgage Interest Up to $11 Million 1mdash68

If Pay Down Acquisition Debt Itrsquos Gone 1mdash69

TCJA ndash Loan Against Equity to Improve 1mdash69

TCJA ndash Debt to Purchase 2nd Home 1mdash69

TCJA ndash Home Equity Debt 1mdash69

TCJA - Home Mortgage Interest (2018-2025) 1mdash70

TCJA ndash Home Equity Debt 1mdash70

TCJA ndash Acquisition Debt 1mdash71

TCJA ndash Debt Exceeds $750000 Cap 1mdash71

Interest Tracing Rules 1mdash71

Int Tracing Rules ndash sect1163-10T(o)(5) Election 1mdash72

Interest Tracing Rules ndash IRS Notice 89-35 1mdash72

TCJA ndash Charitable Contributions 1mdash73

Good Alternative Qualified Charitable Distributions 1mdash73

Qualified Charitable Distribution (QCD) Planning 1mdash73

Qualified Charitable Distributions - Planning 1mdash73

Charitable Contributions 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Casualty Losses 1mdash74

Casualty Losses 1mdash74

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Itemized Deductions for Personal Theft Losses 1mdash75

TCJA ndash Gambling Losses 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

TCJA ndash Gambling Losses ndash Professional Gambler 1mdash75

Gambling Losses ndash Professional Gambler 1mdash76

TCJA ndash Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Nonprofessional Gambler 1mdash76

Gambling Losses ndash Recordkeeping 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Miscellaneous Itemized Deductions 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

TCJA ndash Misc Itemized Deductions Not Subject to 2 Floor = Not Suspended 1mdash77

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

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2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

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copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

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2019 Federal Tax Update

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copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

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2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

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2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 10: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvi

TCJA ndash Miscellaneous Itemized Deductions ndash Know Your Lists 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Deductions Subject to 2 Floor 1mdash78

TCJA ndash Misc Itemized Subject to 2 Floor ndash Taxation of Nonbusiness Lawsuit Proceeds 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Unreimbursed Employee Business Expenses 1mdash78

TCJA ndash Employee vs Contract Labor 1mdash80

Employee Business Expenses for Teachers 1mdash80

TCJA ndash Expenses for Production or Collection of Income 1mdash80

TCJA ndash Investment Advisor Fees 1mdash81

TCJA ndash Hobby Losses 1mdash81

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Tax Prep Fees 1mdash82

TCJA ndash Moving Expenses 1mdash83

ACA Individual Mandate ndash Gone after 2018 1mdash83

TCJA - Education 1mdash83

Alimony and Divorce Planning Under TCJA 1mdash84

Divorce Rate 1mdash84

Alimony ndash Compliance Gap 1mdash84

TCJA ndash Alimony 1mdash84

TCJA Divorce Filing Firestorm 1mdash84

Alimony ndash State Specific Formulas 1mdash84

Alimony ndash Timing Timing Timing 1mdash85

Alimony ndash Pre-2018 Agreement Drug Back Into Court 1mdash85

TCJA ndash Alimony Transition Rule 1mdash85

TCJA ndash Alimony Trusts Eliminated 1mdash86

Alimony Trusts Grandfathered In 1mdash86

TCJA ndash Alimony ndash The Ultimate Question 1mdash86

Divorce Planning ndash Punch List 1mdash87

TCJA - Alternative Minimum Tax 1mdash88

History of AMT 1mdash88

TCJA - Alternative Minimum Tax 1mdash89

TCJA ndash AMT for Individuals 1mdash89

TCJA ndash AMT Exemption Amounts 1mdash90

Individual AMT Rates 1mdash90

Individual AMT and Itemized Deductions 1mdash91

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

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2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

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2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

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2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

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2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

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2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

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2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

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2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

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2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

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2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

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2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

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2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 11: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 1mdashvii

Root Causes of Individual AMT 1mdash91

Appropriations Act ndash California Wildfires 1mdash92

Appropriations Act ndash California Wildfires 1mdash92

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

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2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

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2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

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2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 12: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashi

Chapter 2 Real Estate

Table of Contents

QBID and Rental Real Estate 2mdash1

QBID and Rental Real Estate 2mdash1

Is Rental Real Estate a Business 2mdash1

Consequences of Real Estate as a Business 2mdash2

U S Supreme Court ndash What Is a Business 2mdash2

Is a Single Family Residence a Business 2mdash2

Is Triple Net Lease a Business 2mdash3

Is Renting Land a Business 2mdash4

Is Rental Real Estate a Business Where It Gets Foggy 2mdash4

What Do the Neighbors Say 2mdash5

Rental Real Estate ndash Safe Harbor Notice 2019-7 2mdash6

Rental Real Estate ndash Non-Safe Harbor Trade or Business 2mdash9

Passive Activity Loss 2mdash10

Activity Rules 2mdash10

Step 2 Activity Rules 2mdash10

TCJA ndash Like Kind Exchanges 2mdash14

TCJA ndash Like Kind Exchanges ndash sect1245 vs sect1250 2mdash14

TCJA ndash Like Kind Exchanges of Equipment 2mdash14

TCJA ndash Like Kind Exchanges of Intangibles 2mdash14

TCJA ndash LKEs of Real Estate Only 2mdash14

TCJA ndash Like Kind vs Non Like Kind 2mdash15

Rental Real Estate ndash A Business 2mdash15

Dealer vs Investor 2mdash15

Dealer vs Investor ndash Intent Changed Midstream 2mdash16

Dealer vs Investor - Document Document Document 2mdash17

Passive Activity Losses 2mdash18

Passive Activity Loss ndash Airplane Leasing 2mdash18

PAL ndash Material Participation 2mdash19

PAL ndash RE Professional Material Participation 2mdash19

sect469 Passive Activity Grouping 2mdash19

sect469 Grouping of Passive Activities ndash Did the Taxpayer Group or Could IRS Force Grouping ndash Passive Loss Carryovers Going Going Gone if Absorbed Against Prior

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

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2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

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2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

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2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

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2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 13: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

copy 2019 Bradley Burnett Tax Seminars Ltd 2mdashii

Year Passive Income (Stephen P and Angela M Hardy v Comm TCM 2017-16 (011717)) 2mdash19

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

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2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

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2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

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2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 14: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

3mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 3 Investment

Table of Contents

Opportunity Zones 3mdash1

Opportunity Zones ndash Statutes and Regs 3mdash2

Opportunity Zones ndash 3 Tax Incentives 3mdash2

Opportunity Zones ndash Pay Dirt 1 3mdash2

Form 8949 3mdash3

Urgency of Investing in 180 Days 3mdash3

180 Day Period for Front End Investment 3mdash3

Opportunity Zones ndash Pay Dirt 2 3mdash4

Critical Dates - Front End Benefits 3mdash4

Inclusion Events Triggering Premature Gain 3mdash4

Debt Financed Distributions Not an Inclusion Event 3mdash5

Opportunity Zones ndash Pay Dirt 3 3mdash5

Unanswered Question Sale of Asset by Lower Tier Partnership 3mdash5

Critical Dates - Back End Benefits 3mdash5

Opportunity Zones ndash Investment in QOF vs Not 3mdash6

Opportunity Zones ndash Tax Benefits 3mdash6

Estate and Gift Implications 3mdash7

Gift of QOF Interest 3mdash7

Opportunity Zones ndash Tax Practitioner Role 3mdash8

FBAR 3mdash9

Swiss Bank Accounts 3mdash9

FBAR Penalty 3mdash9

FBAR 3mdash10

FBAR Non-Willful Penalty Stakes (Potentially) Rising 3mdash10

FBAR Penalties Supreme Court Not Interested for Now 3mdash11

FBAR Prison Time 3mdash12

FBAR ndash Foreign Bank Account Reporting 3mdash12

FBAR Due Dates 3mdash16

FBAR 3mdash16

Collection of FBAR Penalties 3mdash16

Claims Against Decedentrsquos Children (and Estate) for Late Fatherrsquos FBAR Penalties Dismissed ndash But Only for Now ndash Government Messed Up Court Pleading But Gets a Second Chance ndash Amended Complaint May Be Filed by 110717 (US v Jung Joo

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 15: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

3mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Park Charles C Park James Park Nina Park and Estate of Que Te Park DC Northern Dist Illinois Eastern Division No 116-cv-10787 (100517)) 3mdash16

Cryptocurrency 3mdash17

Virtual Currency 3mdash17

Cryptocurrency New Disclosure on Form 1040 3mdash18

Cryptocurrency IRS Guidance on Hardforks 3mdash19

Virtual Currency Newly Issued QampA Guidance 3mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

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2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

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Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

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2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

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2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

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2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

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2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 16: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

4mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 4 Individual Retirement Accounts

Table of Contents

Amount Contributed to an IRA 4mdash1

Traditional IRA Deduction Phase-out Ranges for Active Participants (in Thousands) 4mdash1

SECURE Act Setting Every Community Up for Retirement Enhancement Act And Other Blown Out of Proportion Titles to Fish Stories 4mdash1

SECURE Act (Not Yet Law) 4mdash1

Recharacterization 4mdash3

Prohibited Transactions 4mdash4

Basis in Nondeductible IRAs 4mdash4

Payment of Investment Advisory Fees 4mdash4

BBA 2018 ndash Improper IRS Levy on IRAs and Retirement Accounts 4mdash4

IRAs and State Unclaimed Property Funds 4mdash5

Qualified Rollover Contributions Are Limited to One Rollover Per Taxpayer Per Year Not One Per IRA Account Per Year (Alvan L Bobrow and Elisa S Bobrow pro sese v Comm TCM 2014-21) 4mdash5

IRA distribution Made from Failed Financial Institution by FDIC as Receiver Is Disregarded for Purposes of Applying One-Rollover-Per-Year Limitation (IRS Information Letter 2017-0018 (053117)) 4mdash5

Rollovers to SIMPLE Retirement Accounts 4mdash6

Blown Rollovers 4mdash6

Retired NYC Cop with Major Depressive Disorder (Who Missed 60 Day Window to Roll Pension into IRA) Granted sect402(c)(3)(B) Hardship Waiver ndash Result No Taxable Event (John C Trimmer and Susan Trimmer v Comm 148 TC No 14 (042017)) 4mdash6

New Self Certification Procedure for IRA (or Qualified Plan Account) Owners Who Miss 60 Day Rollover Deadline (Rev Proc 2016ndash47 IRB 2016-37 (091216)) 4mdash7

Rollover Chart 4mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

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2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 17: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

5mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 5 Estate Gift and Fiduciary

Table of Contents

Tax Cuts Jobs Act ndash Transfer Taxes 5mdash1

TCJA - Estate and Gift Tax Exclusions 5mdash1

Estate Tax Stats 5mdash1

2018 IRS Data Book 5mdash1

Gift Tax Returns and Revenue 5mdash2

Gift Tax Exam Lessons 5mdash3

IRS Examination of Estate and Gift Tax Returns 5mdash3

2019 Inflation Indexed Amounts 5mdash3

Gifting 5mdash4

Gift Tax Annual Exclusions 5mdash4

Take Advantage of Gifting Now 5mdash4

Upstream Gifting 5mdash4

Clawback 5mdash4

Context for Gifting 5mdash6

Issues w Anti-Clawback Proposed Regs 5mdash6

ldquoReverse Clawbackrdquo Beast Slain 5mdash7

Clawback ndash Use It or Lose It 5mdash7

Estate Planning with IDGTs 5mdash8

Gifting Potpourri 5mdash8

Income Tax Is the New Estate Tax 5mdash8

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Adequate Disclosure 5mdash9

Gift Tax Returns and 529 Plans 5mdash9

sect2053 Gifts Within Three Years of Death 5mdash9

Gift Tax - Personal Liability of Donees 5mdash9

Morehouse College Student Loans 5mdash10

Estate Planning After TCJA 5mdash12

Estate Planning Under TCJA ndash Review Formula Clauses 5mdash12

Portability vs Credit Shelter Trust 5mdash12

Portability 5mdash12

Portability ndash Form 706 5mdash13

Portability Planning 5mdash13

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

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2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

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2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

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2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 18: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

5mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Portability ndash More Time to Make Election 5mdash14

Late Portability Elections 5mdash14

Portability vs Credit Shelter Trust 5mdash14

Portability vs Credit Shelter Trust 5mdash15

TCJA ndash Split Interest Planning 5mdash15

TCJA ndash Review Life Insurance Policies 5mdash15

Valuation 5mdash15

Estate Planning Practice Trends 5mdash15

State EstateInheritance Taxes 5mdash16

State Estate Taxes (2019) 5mdash16

State Inheritance Taxes (2019) 5mdash17

Estate Planning Context 5mdash17

Generation Skipping Tax Under TCJA 5mdash18

Generation Skipping Transfer Tax (GSTT) 5mdash18

State Income Taxation of Trusts 5mdash18

Income Taxation of Estates and Trusts 5mdash19

Rates ndash Before and After TCJA 5mdash19

TCJA ndashEstate and Trust Rates ndash Ordinary Income 5mdash19

Capital Gains Rates (Non-Corporate) 5mdash20

2019 Estate and Trust Rates 5mdash20

38 Net Investment Income Tax 5mdash20

Income Tax Structure Compels Trust Distributions 5mdash21

Income Distribution Planning 5mdash21

Form 1041 Deductions 5mdash21

TCJA - Miscellaneous Deductions - Deductible on Form 1041 5mdash22

Deductibility of Expenses - Unique vs Non-Unique 5mdash22

Bundled Fees Must Be Split 5mdash22

Form 1041 Deductions 5mdash22

Income Tax Deduction for Estate Tax on Income in Respect of a Decedent 5mdash23

Effect of New SALT Cap on Form 1041 5mdash23

Exception to New SALT Cap Contributions by Business 5mdash23

From 1041 to 1040 5mdash24

Deductions for Excess Losses (on Form 1040) on Termination of Estate or Trust 5mdash24

Convert Non-Grantor Trust to Grantor Trust 5mdash25

Multiple Trusts - What Lurks Beneath 5mdash25

Multiple Trusts 5mdash26

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

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2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

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2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

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Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

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2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

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2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 19: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

5mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID ndash Individuals Estates amp Trusts Qualify 5mdash26

Trusts and Estates 5mdash26

sect199A Final Regulations 5mdash26

sect199A Computation - Grantor Trusts 5mdash27

sect199A Computation - Trusts (and Estates) 5mdash27

sect199A Computation - ESBTs 5mdash28

sect199A Regs re Gaming With Trusts 5mdash28

Impact of Technology on Estate Planning 5mdash29

Electronic Wills 5mdash29

But Who Does the Child Inherit From 5mdash30

Discharge of Estate Tax Liens 5mdash31

All Irsquom Asking for Is a Little Respect 5mdash31

Collection of Estate Tax 5mdash31

Closing Letters 5mdash32

IRS Transcripts in Lieu of Closing Letters 5mdash32

Wipe Out 5mdash32

Wipe Out of Estate - FBAR Penalties 5mdash32

Wipe Out of Estate - Household Employment Taxes 5mdash33

Household Worker Wage Bases 5mdash33

Household Worker Employment Tax - Noncompliance 5mdash33

Household Worker Employment Tax - IRS Enforcement 5mdash33

Wipe Out of Estate - Household Employment Taxes 5mdash34

What We Know For Sure 5mdash34

Portability 5mdash35

Portability 5mdash35

sect2010 IRS Makes Wide Scale Extension of Time Available To Make Late Portability Election for Eligible Estates of Decedents Until Later of January 2 2018 or Second Anniversary of Date of Decedentrsquos Death ndash If Yoursquore Later than that You Must Request a Letter Ruling (Rev Proc 2017ndash34 IRB 2017-26 (062617)) 5mdash35

Qualification requirements for simplified method late portability election 5mdash38

Impact of relief on surviving spouse 5mdash39

If simplified method renders return timely DSUE amount is available to surviving spouse 5mdash39

Even if late return timely refunds barred by statute of limitations not recoverable 5mdash39

Claim made for refund for credit or refund of tax in anticipation of relief under Rev Proc 2017-34 will be considered protective claim 5mdash39

Example 1 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file estate tax refund claim 5mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

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2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

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Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

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2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 20: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

5mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Example 2 Estate qualifies for Rev Proc 2017-34 simplified method timely and properly files and elects portability but must also timely file gift tax refund claim 5mdash40

Example 3 DSUE not available until portability election made If DSUE claimed prior to date of portability election DSUE not available resulting tax will be assessed and timely refund claim must be filed to get tax back 5mdash40

sect2010 IRS May Examine Estate Return of First to Die (Regardless of Whether Its Statute of Limitations Has Run) to Determine Correct Portability Amount ndash Reducing Portability Amount is Fair Game if Prior Taxable Gifts Reduced It (Estate of Minnie Lynn Sower v Comm 149 TC No 11 (091117)) 5mdash40

Portability v Credit Shelter Trust 5mdash41

Material Participation by Trusts 5mdash42

Income Distribution Planning 5mdash43

Generation Skipping Transfer Tax (GSTT) 5mdash43

Generation Skipping Transfer Tax Defined 5mdash43

sect2601 Though GSTT Exemption Allocation Wasnrsquot Perfect It Was Effective ndash Though Election Does Not Strictly Comply with Form 709 Instructions or Applicable Regs It May Be Deemed Valid If Info on Return Sufficient to Indicate Personal Representative Intended to Make Election (PLR 201731005 (080417)) 5mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

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2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 21: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 6 Business and Cost Recovery

Table of Contents

Business Deductions 6mdash1

Denial of Deduction for Fines Penalties and Other Amounts (TCJA) 6mdash1

Form 1098-F 6mdash2

Loss Limitation ndash Hurdles 6mdash2

Excess Business Losses New sect461(l) 6mdash4

IRS Issues Explanations for Denial of Deductions Under TCJA 6mdash4

Non-C Corp Excess Business Losses New sect461(l) 6mdash4

Excess Business Losses New sect461(l) 6mdash4

IRS Form 461 6mdash5

sect461(l) Computation Basics 6mdash6

sect461(l) Computation Freed Up Passive Losses 6mdash6

sect461(l) Computation Business vs Non-Business Rentals 6mdash7

New sect461(l) Ambiguity re ldquoSuchrdquo 6mdash7

New sect461(l) Bottom Line 6mdash7

New sect461(l) Wages as Business Income 6mdash8

sect461(l) Computation Losses from Disposition of Bus Prop Included 6mdash9

sect461(l) Computation Losses from Capital Gain Inside a Business Included 6mdash10

New sect461(l) Business vs Non-Business 6mdash10

New sect461(l) Applies at Owner Not Pass-Through Level 6mdash10

New sect461(l) Misc Guidance Needed 6mdash10

New sect461(l) Alternative Minimum Tax 6mdash11

New sect461(l) Trusts and Estates 6mdash11

New sect461(l) Tax Exempts 6mdash11

New sect461(l) State Conformity (or Not) 6mdash11

New sect461(l) Email Question Answer 6mdash12

TCJA - Net Operating Losses 6mdash14

80 Absorption - NOLs Generated in Years Beginning gt 2017 6mdash14

Losses Generated in Calendar Year 2018 - sect461(l) 80 Absorption 6mdash14

TCJA ndash 80 NOL Absorption - Controversy as to Computation 6mdash15

TCJA ndash 80 NOL Absorption - Carryback Limited to 80 6mdash16

TCJA NOL Changes - No Treasury Guidance Yet 6mdash16

AMT NOLs 6mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 22: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Net Operating Losses - Carrybacks and Carryforwards 6mdash17

NOL - Carrybacks and Carryforwards 6mdash17

Farming Business - Defined in sect263A(e)(4) 6mdash17

NOLs - Proof 6mdash18

NOL Carryforwards - Attach NOL Schedule to Return 6mdash18

QBI Deduction Applies to Non-C Corps 6mdash19

QBID Only Reduces Income Tax Effective Rate 6mdash19

QBI and Losses 6mdash19

Loss Limitation ndash Hurdles Under TCJA 6mdash20

QBID Only Reduces Income Tax Effective Rate 6mdash20

QBI and NOLs 6mdash21

TCJA ndash Comparing Top Income Tax Rates 6mdash27

C Corp vs Non-C Corp 6mdash27

Tax Cuts and Jobs Act 6mdash27

Pass-Through vs C Corp ndash Recent Stats 6mdash28

High Income C Corps 6mdash28

High Income ndash Pass-Through vs C Corp 6mdash28

Choices Choices 6mdash29

Choose sect199A Proposed or Final Regs 6mdash30

Choice is all or nothing 6mdash30

sect199A Final Regulations 6mdash30

sect199A Final Regulations - Clarification 6mdash31

TCJA ndash Comparing Top Income Tax Rates 6mdash32

Pass-Through Deduction (QBID) 6mdash32

QBI Deduction Applies to Non-C Corps 6mdash32

QBID ndash Individuals Estates amp Trusts Qualify 6mdash33

Trusts and Estates 6mdash33

sect199A and Trusts 6mdash33

QBI Deduction Does Not Affect AGI 6mdash34

QBI Deduction Below the Line 6mdash34

QBID Only Reduces Income Tax Effective Rate 6mdash34

SSTB Rules and Passive Activity Loss Rules 6mdash35

QBID Not Available if Partnership Level Tax Under CPAR 6mdash35

Qualified Business 6mdash35

Employee Not a Qualified Business 6mdash35

Potential New Qualified Business of Former Employee 6mdash36

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 23: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

QBID and Rental Real Estate 6mdash36

Is Rental Real Estate a Business 6mdash37

Consequences of Real Estate as Business or Not 6mdash37

U S Supreme Court ndash What Is a Business 6mdash38

Is a Single Family Residence a Business 6mdash38

Is Triple Net Lease a Business 6mdash38

Is Renting Land a Business 6mdash39

Is Rental Real Estate a Business Where It Gets Foggy 6mdash40

Is Rental Real Estate a Business 6mdash40

Rental Real Estate ndash Safe Harbor Notice 2019-7 6mdash40

Rental Real Estate ndash Non-Safe Harbor Trade or Business 6mdash43

Renting Property to Related Person 6mdash44

Interaction of sect199A and sect6662 Accuracy Penalty 6mdash45

sect6662 Accuracy Penalty 6mdash45

Lower sect6662 Accuracy Penalty Threshold 6mdash45

What if (Override and) Waive of QBID 6mdash46

TCJA Uncertainty - Protocol 6mdash46

sect6694 Preparer Penalties 6mdash46

QBID Makes Non-C Corp Tax Rates Crazy Low 6mdash47

Qualified Business Income Effective Rates 6mdash47

Limits (Caps) May Reduce QBI Deduction 6mdash47

Tentative QBI Deduction 6mdash47

QBI ndash Sale of Business Assets 6mdash52

Loss Limitation - Hurdles 6mdash53

Loss Limitation ndash Hurdles Pre-TCJA 6mdash53

Loss Limitation ndash Hurdles Under TCJA 6mdash53

TCJA ndash Non-C Corp Excess Business Losses 6mdash54

TCJA ndash Net Operating Loss Rules 6mdash54

QBI and Losses 6mdash55

QBI and NOLs 6mdash55

QBI Deduction Computation 6mdash56

Limits (Caps) May Reduce QBI Deduction 6mdash56

1st Limit (Cap) on QBID = 20 x Ordinary TI 6mdash57

20 x OITI Cap 6mdash57

1st Limit (Cap) on QBID = 20 x OITI 6mdash57

Limits (Caps) May Reduce QBI Deduction 6mdash58

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

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2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 24: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Last 2 Limits Reduce QBID Only if TI High 6mdash58

Phase Out of QBID if TI Exceeds Threshold 6mdash58

2nd Limit on QBID = SSTB (If Income Too High) 6mdash59

Specified Service Trade or Business (SSTB) 6mdash59

SSTB ndash What Does Phrase ldquoPrincipal Asset is Reputation or Skillrdquo Mean 6mdash59

SSTB ndash Skill or Reputation 6mdash59

SSTB ndash Health 6mdash60

SSTB ndash Law 6mdash60

SSTB ndash Accounting 6mdash61

SSTB ndash Actuarial Science 6mdash61

SSTB ndash Performing Arts 6mdash61

SSTB ndash Consulting 6mdash61

SSTB ndash Athletics 6mdash62

SSTB ndash Financial Services 6mdash63

SSTB ndash Brokerage Services 6mdash63

SSTB ndash Investing Investment Management Trading or Dealing 6mdash64

SSTB ndash Only Matters if TI Above Threshold 6mdash64

SSTB ndash Crack and Pack Strategy 6mdash65

Backstory ndash Crack and pack (divide and conquer) 6mdash65

SSTB ndash Anti-Cracking Rule 6mdash65

SSTB ndash A Cracking Permission Rule 6mdash66

SSTB ndash Cracking Permission Rule Bites Dust 6mdash67

SSTB ndash Cracking Permission Rule Bites Dust Solution Break Into 2 Businesses 6mdash67

SSTB ndash Cannot Be Aggregated With Other Entities 6mdash67

SSTB ndash De Minimis Rule 6mdash67

SSTB ndash If De Minimis Rule Not Met 6mdash68

Final Regs ndash Separating Businesses 6mdash69

Pass-Through Entity Must Report SSTB Status 6mdash71

Phase Out of QBID for SSTB If TI gt Threshold 6mdash71

Phase Out of QBI Deduction for SSTB 6mdash71

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash72

Limits (Caps) May Reduce QBI Deduction 6mdash72

Wage or WageProperty Limit 6mdash72

Wage Limit 6mdash73

Wage Limit ndash Definition of W-2 Wages 6mdash73

Wage Limit ndash W-2 Wage and Elective Deferrals 6mdash73

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

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2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 25: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Wage Limit ndash W-2 Wages ndash 3 Computations 6mdash73

Wage Limit ndash Examples 6mdash74

Phase In of Wage Limit 6mdash74

Wage Limit Planning 6mdash75

WageProperty Limit 6mdash76

Property Limit 6mdash76

K-1 Failure to Report Item 6mdash78

Wage or WageProperty Limit Planning 6mdash78

Wage or WageProperty Limit - Business-by-Business Limit 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range 6mdash79

Do Both SSTB and Wage WageProperty Limits Apply Within Phase Out Range Yes 6mdash79

Effect of Business Losses on QBID 6mdash80

Effect of Carryover QB Loss on QBID 6mdash81

Effect of QB Loss on QBID 6mdash81

sect199A and Aggregation 6mdash82

To Aggregate or Not Aggregate That is the Question 6mdash82

sect199A and Aggregation 6mdash83

SSTB ndash Aggregation at Owner or RPE Level 6mdash83

Restaurant and Catering Businesses May Be Aggregated 6mdash86

Businesses Owned Identically Through 2 Pshps May Be Aggregated 6mdash86

Mere Common Management Not Enough for Aggregation 6mdash86

Some Businesses May Be Aggregated Others Need Not Be 6mdash86

Minority Owners May Aggregate If a Majority Owner Can 6mdash87

Only Businesses Meeting All Aggregation Tests May Be Aggregated 6mdash87

Must Meet All Tests to Aggregate 6mdash87

Businesses Meeting Integration Test and Real Estate Leased to Them May Be Aggregated 6mdash87

Ownership Attributed Through Family Member Leads to Aggregation Privilege 6mdash88

Minority Owners Qualify If Any Majority Owner Does 6mdash88

If Group Owns gt 50 Aggregation Permitted C Corps May Not Be Aggregated 6mdash88

Centralized Business Elements Test Not Met May Not Be Aggregated 6mdash89

Non-Businesses May Be Aggregated 6mdash89

Parent and Subs May Be Aggregated 6mdash89

Only Businesses May Be Aggregated 6mdash89

Commercial Properties May Be Aggregated 6mdash90

No Aggregation of Commercial and Residential 6mdash90

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 26: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashvi

copy 2019 Bradley Burnett Tax Seminars Ltd

Aggregation of Real Estate 6mdash90

sect199A and Aggregation 6mdash91

sect199A Aggregation on 2018 Form 1040 6mdash92

sect199A ndash Grain Glitch 6mdash92

sect199A ndash Grain Fix 6mdash92

sect199A ndash Planning 6mdash93

QBID ndash Good If You Can Get It 6mdash94

QBID ndash Which Side of the Fence A New Thinking Process 6mdash94

Income (QBI vs Non-QBI) ndash Which Side of the Fence (Do You Want Your Income On) 6mdash94

sect168(k) Bonus Depreciation 6mdash97

Cost Recovery Under TCJA 6mdash97

Fast Cost Recovery - Methods 6mdash98

sect168(k) Bonus Depreciation 6mdash98

TCJA sect168(k) 6mdash98

sect168(k) Bonus Depreciation - How to Claim Bonus 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out 6mdash99

sect168(k) Bonus Depreciation - How to Elect Out (Slightly Late) 6mdash99

sect168(k) Bonus Depreciation - Property Owner Elects Out 6mdash100

Bonus Election Out - Cannot Revoke Without IRS Consent 6mdash100

sect168(k) Bonus Depreciation - Qualified Property 6mdash100

sect168(k) - Qualified Improvement Property (QIP) 6mdash101

TCJA - Qualified Improvement Property 6mdash101

Qualified Improvement Property (QIP) - Odds of Fix 6mdash102

Qualified Improvement Property (QIP) - Mechanics of Fix 6mdash103

Qualified Improvement Property (QIP) - Effects of Fix No Fix 6mdash103

sect168(k) - Plants 6mdash104

Bonus Depreciation Available on Parts of a New Apartment Building Property 6mdash104

Cost Segregation Studies 6mdash104

sect168(k) Bonus Depreciation ndash Elections 6mdash105

sect168(k) Bonus - Retroactive (to 2017) Elections 6mdash105

Retroactive Elections - Rev Proc 2019-33 6mdash106

TCJA - Retroactive Changes to sect168(k) 6mdash106

Retroactive Elections - Rev Proc 2019-33 6mdash106

Rev Proc 2019-33 - Lots of Forks in the Road 6mdash107

Retroactive sect168(k) Elections (Revocations) - Rev Proc 2019-33 6mdash107

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

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2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 27: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashvii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rev Proc 2019-33 - Talk About a Mulligan 6mdash108

Rev Proc 2019-33 - Two Choices 6mdash109

Rev Proc 2019-33 - Mechanics 6mdash109

Income Averaging - Alive or Dead 6mdash110

sect168(k) Bonus Regulations - Allowed or Allowable 6mdash111

Allowed or Allowable - Ouch 6mdash111

sect168(k) Bonus - If No Claim Bonus and No Elect Out 6mdash111

Allowed or Allowable - Bonus Depreciation Double Whammy 6mdash112

Allowed or Allowable - Saved by the Rev Proc 2019-33 Bell 6mdash112

sect168(k) Bonus Depreciation - Newly Unveiled Final Regulations 6mdash113

sect168(k) - Treasury and IRS Guidance 6mdash113

sect168(k) Bonus Depreciation Final Regs - Issued on Friday the 13th 6mdash113

sect168(k) ndash Treasury Guidance 6mdash114

sect168(k) ndash Treasury Guidance Choices Choices 6mdash114

sect168(k) Bonus -Two Questions 6mdash114

sect168(k) Bonus - Acquisition Date 6mdash115

sect168(k) - Placed in Service 6mdash115

Entertainment Meals 6mdash125

Business Entertainment and Meals Under TCJA 6mdash126

Pre-TCJA Entertainment 6mdash126

TCJA ndash Business Entertainment 6mdash126

Entertainment ndash Objective Test 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash126

Business Meals 6mdash126

TCJA ndash Business Meals 6mdash126

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA ndash Business Entertainment and Meals 6mdash127

TCJA Cuts Entertainment Leaves Meals 6mdash127

TCJA Cuts Entertainment Deduction 6mdash128

TCJA Cuts Entertainment Leaves Meals 6mdash128

Business Meals Under TCJA 6mdash128

TCJA ndash Employer Credit for Paid Family amp Medical Leave 6mdash128

TCJA ndash Cash Method for C Corps 6mdash129

TCJA ndash Inventories and Cash Method 6mdash129

TCJA ndash sect263A Uniform Capitalization Rules 6mdash129

TCJA ndash RampD Costs 6mdash130

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

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2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

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2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

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Page 28: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashviii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Moving Expenses 6mdash130

TCJA ndash Credit for Paid FamilyMedical Leave 6mdash130

TCJA - Gambling Expense Deduction 6mdash130

TCJA ndash Listed Property 6mdash130

TCJA - sect163(j) Business Interest Expense Limit 6mdash131

Scope of sect163(j) 6mdash131

Why Why Why Why 6mdash132

Pre-TCJA sect163(j) - (Old Regime) 6mdash132

Carryovers from Old Regime to New Regime 6mdash133

TCJA sect163(j) - (New Regime) 6mdash133

sect163(j) ATI Limit ndash Example 6mdash134

IRS Form 8990 6mdash134

sect163(j) - Definition of Business 6mdash134

sect163(j) Applies to Taxpayers 6mdash135

sect163(j) Business Interest Expense Limit 6mdash136

sect163(j) ATI Limit ndash Example 6mdash136

IRS Form 8990 - Business Interest Expense (BIE) 6mdash136

Interest Tracing Rules 6mdash137

Interest Tracing Rules - ldquoPretend Rulesrdquo 6mdash137

Int Tracing Rules ndash sect1163-10T(o)(5) Election 6mdash138

Interest Tracing Rules ndash IRS Notice 89-35 6mdash138

Investment Interest Expense 6mdash138

Interest Tracing Rules - Business vs Investment Interest Expense 6mdash139

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash139

TCJA ndash Are Guaranteed Payments - Now Walking the Plank 6mdash140

TCJA - Guaranteed Payments 6mdash141

Guaranteed Payments vs Allocations of Gross Income 6mdash141

Business Interest Expense (BIE) - Prop Regs Broaden Definition 6mdash141

Business Interest Expense (BIE) - Anti-Avoidance Rule 6mdash141

IRS Form 8990 - Computation of Limit on BIE and Allowable BIE 6mdash142

sect163(j) Business Interest Expense Limit 6mdash142

sect163(j) ATI 6mdash143

sect163(j) ATI Computation Additions 6mdash143

ATI Computation Depreciation 2018 vs 2022 6mdash143

sect163(j) ATI Computation Depreciation Amortization and Depletion 6mdash144

IRS Form 8990 Computation of ATI ndash Additions 6mdash144

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2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

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2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

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2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

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2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 29: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashix

copy 2019 Bradley Burnett Tax Seminars Ltd

sect163(j) ATI Computation Subtractions 6mdash144

IRS Form 8990 Computation of ATI ndash Subtractions 6mdash145

ATI Computation Depreciation Capitalized 6mdash145

sect163(j) ATI Computation 6mdash146

sect163(j) Business Interest Expense Limit 6mdash146

sect163(j) Computation - Business Interest Income (BII) 6mdash146

IRS Form 8990 Computation of ATI ndash Computing BII 6mdash146

sect163(j) Business Interest Expense Limit 6mdash147

sect163(j) ATI Computation - Floor Plan Financing Interest 6mdash147

sect163(j) ATI Limit ndash Example - Vehicle Dealer 6mdash147

Carryforward of Disallowed BIE 6mdash148

IRS Form 8990 Computation of Carryforward (EBIE) 6mdash149

Small Business Exemption 6mdash149

Exempt Small Business $25 Million Gross Receipts and Attribution 6mdash150

sect163(j) Anti-Abuse Rule 6mdash150

sect163(j) ndash Gross Receipts Test 6mdash151

sect163(j) ndash Gross Receipts Test - Computation 6mdash151

sect163(j) ndash Gross Receipts Test - Individuals 6mdash151

sect163(j) ndash Gross Receipts Test - Tax Exempt Organizations 6mdash151

sect163(j) ndash Gross Receipts Test - S Corp or Partnership 6mdash152

Attribution Rules - Getting Snagged 6mdash152

sect163(j) ndash Gross Receipts Test Aggregation Rules 6mdash152

sect163(j) Taxpayer Later Meets Small Business Exemption ndash Fate of Carryover 6mdash154

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash154

Going In and Out of Exempt Status 6mdash155

Tax Shelters (Syndicates) - Not Exempt from sect163(j) 6mdash156

sect163(j) ndash Tax Shelter 6mdash156

sect163(j) and Real Property 6mdash157

Real Property Business Elect Out Depreciation Consequences 6mdash158

Switch to ADS ndash Example 6mdash158

sect163(j) and Agriculture 6mdash159

sect163(j) ndash Farming Business Elect Out 6mdash159

sect163(j) ndash Co-ops May Elect Out 6mdash160

How to Elect Out - Real Property Business or Farming Business 6mdash160

How to Elect Out - Partnership 6mdash161

sect163(j) Exempt or Excepted Businesses 6mdash161

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 30: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashx

copy 2019 Bradley Burnett Tax Seminars Ltd

Allocations Between Excepted and Non-Excepted Businesses 6mdash161

How Does sect163(j) Vary with Entity Type 6mdash161

sect163(j) and C Corps 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 1 6mdash162

sect163(j) ATI Limit ndash Example C Corp ndash Year 2 6mdash162

sect163(j) Applies at Partnership Level 6mdash163

EBIE Flows to Partner and Stacks at Partner Level 6mdash163

Partnership Allocation Among Partners 6mdash163

Partnership Reporting to Partners Schedule K-1 Box 13 6mdash164

Partnership Reporting to Partners Schedule K-1 Box 20 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 1 6mdash164

sect163(j) ATI Limit ndash Example Partnership ndash Year 2 6mdash165

sect163(j) and Partners 6mdash165

Excepted Pass-Through - May Need to Be Tapped for Info 6mdash166

EBIE and Partnerrsquos Outside Basis 6mdash166

Excess Taxable Income (ETI) - Computed and Distributed by Pass-Through 6mdash166

Excess Business Interest Income (EBII) - Computed and Distributed by Pass-Through 6mdash166

IRS Form 8990 - Partnership Pass-Through Items 6mdash166

IRS Form 8990 6mdash167

Carryforward of Disallowed BIE 6mdash167

sect163(j) and S Corps 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 1 6mdash168

sect163(j) ATI Limit ndash Example S Corp ndash Year 2 6mdash169

sect163(j) and S Corps 6mdash169

sect163(j) Computation Self Charged Interest 6mdash169

IRS Form 8990 S Corp Pass-Through Items 6mdash169

IRS Form 8990 6mdash170

Interaction of sect163(j) with Other Code Sections 6mdash170

Loss Limitation - Hurdles 6mdash171

Interaction of sect163(j) with Other Code Sections 6mdash171

sect163(j) and Tax Prep Software 6mdash171

Research Credit Interaction with sect163(j) 6mdash171

TCJA - sect163(j) Business Interest Expense Limit 6mdash172

sect163(j) Business Interest Expense Limit Summary 6mdash172

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

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copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

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2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

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2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 31: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

6mdashxi

copy 2019 Bradley Burnett Tax Seminars Ltd

Planning to Reduce Impact of sect163(j) 6mdash173

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

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2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 32: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

7mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 7 Fringe Benefit and Qualified Retirement Plans

Table of Contents

Health Reimbursement Accounts (HRAs) 7mdash1

Controversy Over Recent Short Term Health Insurance Plan Regs 7mdash1

sect401(k) Plans Exception to sect72(t 7mdash2

TCJA ndash Moving Expenses 7mdash2

TCJA ndash Bicycle Commuting Expense 7mdash2

TCJA ndash Employer Credit for Paid Family amp Medical Leave 7mdash2

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 7mdash3

Employer Mandate Penalty 7mdash3

Employer Mandate Penalty ndash Storm Brewing 7mdash3

Fringe Benefits 7mdash3

Fringe Benefit Defined 7mdash3

Fringe Benefit Formula 7mdash3

Thinking process 7mdash4

Look out for workers comp premium wage base 7mdash6

IRS Spruces Up Pub 15-B to Discuss Fringes in More Detail (Pub 15-B (2017)) 7mdash6

Frequent Flyer Miles 7mdash6

Frequent flyer miles earned from business travel 7mdash6

Bank ldquoThank Yourdquo Points for Opening a New Account Are Taxable 7mdash6

De Minimis (Minimal) Benefits (sect132(a)(4) (e)) 7mdash7

Is Employer Provided Fitbit Tax Free to Employee as De Minimis Fringe 7mdash7

sect274 Cost of Professional Hockey Teamrsquos Away Game Meals 100 Not 50 Deductible ndash Qualify as De Minimis Fringes to Players and Other Traveling Employees (Jeremy M Jacobs and Margaret J Jacobs v Comm 148 TC No 24 (062617)) 7mdash8

Bruins meet de minimis exception 7mdash8

Employer-Provided Cell Phones (sect132(e) sect1132-6(b)) 7mdash8

Noncompensatory business purposes 7mdash8

Cell phones provided to promote goodwill boost morale or attract prospective employees not excluded from employeersquos wages 7mdash8

HSA Contribution Limits 7mdash8

Cafeteria Plans (sect125) 7mdash9

$2600 (2017) ($2650 for 2018) Contribution Limit to a Health Flexible Spending Arrangement (FSA) ($2550 for 2016) ( 7mdash9

Health Reimbursement Arrangements (HRAs) (sect105(h) sect1105-11) 7mdash9

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 33: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

7mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

An HRA is a Group Health Plan 7mdash10

HRAs Incompatible with ACA Market Reforms ndash So Says the Government (Notice 2013-54 Notice 2016-17) 7mdash10

Obamacare murders most free standing HRAs 7mdash10

Transitional relief for carryover HRA balances 7mdash10

Three types of HRAs survive ACA 7mdash10

Integration with group health insurance may spare an HRArsquos life 7mdash11

HRAs generally cannot be integrated with individual policies 7mdash11

Health Insurance Premium Reimbursement Gets the Axe 7mdash11

Exceptions to $100Day Penalty 7mdash11

HRA Reporting Rules 7mdash11

HR 34 and Medical Reimbursement Arrangements (HR 34 (21st Century Cures Act sect18001)) 7mdash12

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) 7mdash12

Extension of Period for Furnishing Written QSEHRA Notice to Eligible Employees (Notice 2017-20) 7mdash12

Qualified Retirement Plans 7mdash13

Qualified Retirement Plan Changes 7mdash13

Compensation Limit for 2017 (and 2018) 7mdash13

Elective Deferral Limit for 2017 (in 2018) 7mdash13

Defined contribution limit for 2017 (2018) 7mdash13

SIMPLE plan salary reduction contribution limit for 2017 (and 2018) 7mdash13

Catch-up contribution limit for 2017 (and 2018) 7mdash13

Qualified Retirement Plan Topics 7mdash14

SIMPLE Plans 7mdash14

SIMPLE Plan Adoption Due Date 7mdash14

Chart Retirement Plan Rules 7mdash14

Forms 5500 7mdash15

Forms 5500 Filing Requirements 7mdash15

Due date for Form 5500 Last day of 7th month after plan year ends 7mdash15

Late Filing Penalty for Form 5500 7mdash15

Aggregation Rules 7mdash15

sectsect410 414 Aggregation Rules Apply to Blow ESOP Out of Water ndash Qualified Plan Minimum Participation Standards Not Met ndash Covering Only Sole Employee of One Corp Not Enough When Controlled Group Brother Sister Corp Had Five Employees Not Covered (Paza Staffing Services Inc v Comm Docket No 6881-12R (081717)) 7mdash15

Qualified Plans of Each of Two Entities Under Common Control Required to Be Aggregated for Annual Contribution Limit Testing (TAM 201715001) 7mdash15

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 34: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

7mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect415 Contribution Limits 7mdash16

sectsect401 501 ESOP Loses Qualified Status for Exceeding sect415 Contribution Limit (DNA Pro Ventures Inc Employee Stock Ownership Plan v Comm 8th Circuit No 16-1168 (050917) Affgrsquo TCM 2015-195 (100515)) 7mdash16

Loans Not Taxable Distributions if Ground Rules Met 7mdash16

Loan must be evidenced by a legally enforceable agreement 7mdash17

Loan is deemed distributed if payment not made on due date or within grace period 7mdash17

Cure period extends to last day of calendar quarter following calendar quarter in which required installment payment was due 7mdash17

If payment not made by end of cure period entire balance of loan deemed distributed 7mdash17

sect401 Busted 401(k) Loan Cure Period Results in Distribution of Entire Loan Amount ndash Cure Period Extends to Last Day of Calendar Quarter Following Calendar Quarter in Which Loan Payment Was Missed ndash No Hardship Withdrawal Relief for sect72(t) 10 Tax (Gregory J Gowen v Comm TCS 2017-57 (072417)) 7mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 35: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

8mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 8 Employment Tax Self-Employment Tax and Forms 1099

Table of Contents

sect7434 Fraudulent Filing of Info Returns 8mdash1

Employment Tax Crackdown 8mdash2

FICA and Medicare Taxes 8mdash2

FICA and Medicare Wage Bases 8mdash2

2018 FICA and HI Taxes ndash Table 8mdash2

TCJA ndash Employment Taxes 8mdash3

FICA Earnings Required for Quarter of Credit 8mdash3

SE Wage Base 8mdash3

Household Worker Wage Base 8mdash4

IRS Letter to Tax Preparers (e-news for tax professionals 2017-4) 8mdash4

Future of Social Security (OASDI) Trust Fund 8mdash5

Projected FICA Wage Bases (2019-2026) ((2017 Annual Report page 116) 8mdash6

Social Security Scam 8mdash6

Inspector General Warns Public About SSA Employee Impersonation Scheme (Posted (072017)) 8mdash6

W-2 Scams 8mdash7

Form W-2SSN Data Theft Information for Businesses and Payroll Service Providers (IRS website) 8mdash7

W-2 Filing Stats for Filing Season 8mdash9

New Wage Verification Process Holds Promise but IRS Faced Implementation Challenges (GAO-17-525T (042617)) 8mdash9

W-2 W-3 and 1099-MISC Due Dates 8mdash10

New filing due date (for 2016 and later) Forms W-2 W-3 and 1099-MISC 8mdash10

Penalty for Delinquent Information Returns 8mdash10

Delinquent Information Return Penalty Dramatically Increase (Effective for Info Returns and Statements Required to be Filed After 2015) 8mdash10

Information Reporting Penalty De Minimis Safe Harbor 8mdash10

IRS De Minimis Error Safe Harbor to sectsect6721 and 6722 Penalties (Notice 2017-09 (012317)) 8mdash10

Fraudulent Information Return (Form 1099) Lawsuits 8mdash14

sect7434 Issuance to Misclassified Worker of Form 1099 (Instead of W-2) Not a Fraudulent Filing of an Information Return ndash Correct Amount of Pay Reported But Allegedly Wrong Form Used ndash Thus $5000 in Damages Not Awarded ndash Court Said to Misclassified Worker (Alleged Employee) Had Other Remedies (Thom V Tran

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 36: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

8mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

v Ngoc Tran Case No 816-cv-1356-T-23AEP DC MD Florida Tampa Division(030717) (not following Magistratersquos Recommendation (020117) in samecase) 8mdash14

IRS Propaganda re Employment Tax Returns 8mdash17

IRS Pub 5146 Employment Tax Returns ndash Recently Revised 8mdash17

Interest free 2 requirements 8mdash18

Pay the tax when you sign IRS Agreement to Assess or file Form 941-X 8mdash19

IRS Employment Tax Research Audits 8mdash19

GAO Report re IRS Employment Tax Research Audits (GAO-17-371 April 2017) 8mdash19

Change of Business Address or Responsible Party 8mdash20

Responsible party 8mdash21

Notify IRS If Address or Responsible Party Changes (IRS Form 8822 or IRS Form 8822-B) (Rev Proc 2010-16 IRB 2010-19 (051010)) 8mdash21

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss YourCollection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your HeadHanded to You ndash Seller of Construction Company Liable for Taxes Incurred AfterHe Sold Company ndash Better to Let IRS Know Yoursquore No Longer the ResponsiblePerson (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 8mdash23

Private Delivery Services 8mdash25

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHLAdded But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) (IRS webpage Private Delivery Services PDS page last reviewedor ipdated 22-May-2017) 8mdash25

Outsourcing Payroll Duties 8mdash26

Tips for Employers Who Use a Payroll Service (SSAIRS Reporter Spring 2017) 8mdash26

Professional Employer Organizations (PEOs) 8mdash27

PEO Throws Customer Under the Bus ndash PEO Embezzles Customerrsquos Payroll Tax Monies and Obviously Fails to Deposit ndash Customer Remains Liable for All Tax Plus $425000 in Failure to Pay and Failure to Deposit Penalties and Interest ndash Due Diligence Required When Utilizing Payroll Service Providers (Kimdun Inc et al v US No 216-cv-01500-CAS (RAOx) DC CD CA (081516)) 8mdash27

Company learned of outside payroll providerrsquos failures in 2009 and continued using their services until 2012 8mdash27

Professional Employer Organizations (PEOs) Certification Qualified Plans and ACA 8mdash28

Robust standards 8mdash28

Audited annual financials 8mdash28

Bond and surety 8mdash29

Business entity 8mdash29

Consent to disclosure 8mdash29

IRS must perform due diligence on CPEOs 8mdash29

With a PEO the PEOrsquos customer remains liable for federal employment taxes 8mdash29

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 37: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

8mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

With a CPEO the PEOrsquos customer is generally relieved of liability for federal employment taxes 8mdash29

Buyer beware 8mdash29

CPEO is new breed of statutory employer 8mdash29

Tacking of wages allowed with CPEO 8mdash29

CPEOrsquos customer gets to keep wage related credits 8mdash30

CPEOs not a perfect solution for everything 8mdash30

Thorny issues remain for PEOs and qualified employee benefit plans and ACA employer mandate and reporting thorny issues 8mdash30

PEO as sponsor of qualified plan 8mdash30

CPEO as sponsor of qualified plan 8mdash30

CPEO and ACA employer mandate penalty 8mdash30

PEO and ACA reporting 8mdash31

CPEOs not a perfect solution for everything 8mdash31

Form I-9 Verification re Immigration Status 8mdash31

Fines for I-9s and Other Immigration Violations Jumped Up as of 080116 8mdash31

Hiring New Employees Paying Contract Labor Do Not Overlook Form I-9 8mdash31

Eligibility for employment 8mdash31

Events Management Company Reportedly Socked for $605250 for Failure to Properly Complete I-9 Paperwork (Roy Maurer SHRM blog post (080317)) 8mdash32

Duty of Consistency 8mdash32

sect6501 Milwaukee Restaurateurrsquos Attempted Deduction for Wages Violated Duty of Consistency ndash Increased Wages Reported on Lame Duck 941s Do Not Qualify for Increased Income Tax Deductions ndash To Allow It Would Be Wallydraigle (Alaa I Musa v Comm No 16‐1841 7th Cir (042617)) 8mdash32

Recordkeeping 8mdash34

Keep records minimum 4 years but forever is better 8mdash34

FICA Tax Refunds and Employee Consent 8mdash34

Employee Consent for Employer FICA Tax Refund ndash Electronic Consents Permitted and Reasonable Efforts (in Event Consent is Not Secured) Clarified (Rev Proc 2017-28 IRB 2017-14 040317) 8mdash34

Independent Contractor vs Employee 8mdash38

sect3402 In IRS Contract Labor vs Employee Dispute Employer Could Directly from IRS Discover Information Regarding Whether Worker Paid Income Tax ndash This Court Case Deserves Applause (Mescalero Apache Tribe v Comm 148 TC No 11 (040517)) 8mdash38

IRS to IRS Employees Severely Limit Employer Access to Worker Return Info ndash Mescalero Has Extremely Limited Application (CCA 201723020 (050517)) 8mdash38

Work Opportunity Credit and Employment Tax 8mdash39

Work Opportunity Tax Credit (WOTC) for Exempt Organizations Hiring Veterans is Available to Offset Employment Tax (sect51 IRS Form 5884-C) 8mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

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2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

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2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

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2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

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2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 38: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

8mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

Research Credit Payroll Tax Offset 8mdash41

Qualified Small Business Payroll Tax Credit for Increasing Research Activities 8mdash41

Reporting 8mdash41

Election by Qualified Small Business to Claim Payroll Tax Credit for Increasing Research Activities (Notice 2017ndash23 IRB 2017-16 (041717)) 8mdash41

Payroll tax election capped at $250000 8mdash41

No payroll tax credit election if made a payroll tax credit election for 5 or more preceding taxable years 8mdash41

FICA and NQ Deferred Comp 8mdash42

sect3121(v)(2) FICA and Nonqualified Deferred Comp (NQDC) - Payment of FICA Barred by Statute of Limitations in Order to Elect Special Timing Rule (and Avoid FICA Tax Later) No Longer Allowed - IRS Slams on the Brakes and Reverses Course (IRS Chief Counsel Memorandum AM2017-001 (CCM) (011317)) 8mdash42

SE Taxes and sect1402(a)(13) Limited Partner Exception 8mdash43

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 8mdash43

Trust Fund Recovery Penalty 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Not Liable for Trust Fund Recovery Penalty ndash Delivering Payroll Checks and Transferring Bank Balances Did Not Sink Her ndash She Did Not Know Payroll Taxes Went Unpaid ndash Neither Responsible or Willful - Responsibility is a Matter of Status Duty and Authority (Christina M Fitzpatrick v Comm TCM 2016-199 (110216)) (Fitzpatrick 1) 8mdash43

sect6672 Wife of Half Owner of Failed Florida Wine Bar Wins Attorney Fees for Litigation Finding Her Not Liable for Trust Fund Recovery Penalty ndash Attorney Fee Award Limited to Statutory Rate ndash No Special Factors to Justify a Higher Amount ndash At Statutory Rates of $180ndash200Hour from 2012 through 2016 Court Awarded Attorney Fees of $179000 ndash Delinquent Trust Fund Taxes Were Only $138700 (Christina M Fitzpatrick v Comm TCM 2017-88 (052417)) (Fitzpatrick 2) 8mdash43

sect6672 Owner of Business Liable for $4323000 Trust Fund Recovery Penalty as Consequence of Lending $100000 to Business (After an Employee Had Embezzled $10 Million) to Pay Payroll But Not Enough to Pay Payroll Taxes ndash Which Came First the Chicken or the Egg (McClendon (DC TX 111716) 8mdash43

Tips v Service Charges 8mdash43

IRS Employer Reminder Reporting Tips versus Service Charges Key Differences Between Categories Affect Employees Tax Reporting (FS-2017-08 042517) 8mdash43

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2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

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2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 39: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Updates

9mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 9 C Corporations and Exempt Organizations

Table of Contents

Capital Contributions vs Income 9mdash1

Suspended Corporation 9mdash1

Private Foundations Granting Scholarships 9mdash1

Form 1120 9mdash2

Late Filing Penalty 9mdash2

TCJA ndash Comparing Top Income Tax Rates 9mdash2

TCJA ndash Corporate Tax Rates 9mdash2

TCJA ndash Corp Tax Rates ndash Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp AMT 9mdash3

TCJA ndash AMT Repeal ndash Rate Blended for 1st FY Ending After 2017 9mdash3

TCJA ndash C Corp MTC Carryover 9mdash4

C Corps and Buy Sell Agreements 9mdash4

C Corp Income Tax Structure 9mdash5

Dividends Received Deduction 9mdash5

Should You Switch to a C Corp 9mdash5

C Corps are Like Lobster Traps 9mdash6

C Corp Planning ndash Splitting Income with C Corprsquos Lower Brackets 9mdash6

C Corp vs Non-C Corp 9mdash6

Accumulated Earnings Tax (AET) 9mdash7

C Corp vs Non-C Corp 9mdash7

C Corp sect1202 (QSBS) Stock 9mdash7

sect1245 Rollover of sect1202 Stock 9mdash8

sect1202 Stock Planning Pointers 9mdash8

C Corp vs Non-C Corp 9mdash8

S Corp Conversions to C Corp 9mdash9

Exempt Organizations 9mdash10

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash10

Exempt Organizations Computation of UBTI 9mdash10

Exempt Orgs ndash Ground Rules 9mdash11

TCJA ndash Excise Tax on Tax Exempts for Employee Parking 9mdash11

TCJA ndash New Excise Tax Aimed at Exempt Orgs w Highly Compensated Employees 9mdash11

Exempt Organizations ndash Action Points 9mdash14

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 40: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Updates

9mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

TCJA ndash Corp Tax Rates ndash Blended for 1st Fiscal Year 9mdash15

sect11 TCJA Blended rate (between prior law (up to 35) and TCJA (21)) applies for fiscal year straddling 2017 and 2018 9mdash15

Legislation ndash Highway Act (PL 114-41 sect2006 (073115)) 9mdash15

sectsect6072 6081 Form 1120 (and Related Extension) Due Dates Change for 2016 and Later Returns (IRS webpage ldquo6-Month Extension Period for Calendar Year C Corporations -- 08-FEB-2017rdquo) 9mdash15

C Corporation Return Due Dates 9mdash15

Income Tax Return Due Dates 9mdash15

Tax Return Extension Periods 9mdash16

FBAR 9mdash17

C Corporation Penalty for Late Filing 9mdash17

Accumulated Earnings Tax (AET) 9mdash17

AET Applies to C Corps that Accumulate Excess Earnings 9mdash17

Accumulating EampP beyond reasonable needs of business triggers AET 9mdash17

IRS must prove accumulation is beyond reasonable needs of business 9mdash18

Reasons deemed acceptable for accumulating EampP 9mdash18

Reasons not deemed acceptable for accumulating EampP 9mdash18

A mere holding or investment company is prima facie evidence of tax avoidance purpose 9mdash18

sect531 Accumulated Earnings Tax Applies to Corporation Holding Only Partnerships (CCA 201653017 (123016)) 9mdash18

C Corporation Year End Planning Maneuvers 9mdash19

Income deferral generally desirable 9mdash19

Acceleration of income can avoid higher rates 9mdash19

Acceleration of income into earlier year to prevent bracket creep in later year 9mdash19

Manipulate income to keep C Corp ldquosmallrdquo to avoid application of AMT 9mdash19

Pushing income into 2017 can preserve AMT exemption for 2017 9mdash20

Creating a little not a lot of income tax can preserve exception from estimated tax penalty 9mdash20

To qualify for ldquo100 of last yearrsquos taxrdquo safe harbor there must have been income tax liability in the prior year 9mdash20

Accelerate income if necessary to make safe harbor available 9mdash20

Balance benefits of NOL carryback against benefits of lower estimated tax threshold and lower prior year tax bracket 9mdash20

Manipulate income to avoid ldquolarge corporationrdquo status for estimated tax penalty avoidance purposes 9mdash20

Exclusion of Gain on sect1202 Stock (Made permanent by PATH Act sect126) 9mdash20

sect1202 Qualified Small Business Stock 9mdash21

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 41: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Updates

9mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect1202 Providing Laboratory Reports to Health Care Professionals Not ldquoHealthrdquo Within Meaning of sect1202(e)(3)(A) ndash Thus Stock Not Disqualified as sect1202 QSBS Stock ndash Stock Eligible for Qualified Small Business Stock Gain Exclusion (PLR 201717010 (042817)) 9mdash21

C Corporations and Reasonable Compensation 9mdash22

Chicagorsquos Premiere Intellectual Property Law Firm Not Permitted to Pay Out All Profits in Compensation ndash A Reasonable Investor Must Enjoy a Reasonable Rate of Return Even from a Professional Corporation ndash Accuracy Penalty Stuck ndash Could Not Prove Sought Advice as to Whether Amount of Salaries Paid Reasonable (Brinks Gilson amp Lione a Professional Corporation v Comm TCM 2016-20 (021016) 9mdash22

sect162 Tax Court Trims Rent Paid by Arkansas Wholesaler (KampK Veterinary Supply Inc v Comm TCM 2013-84 (032513)) 9mdash22

Paying the Wrong Personrsquos Expense 9mdash24

Payment by C Corp of Related Corporationrsquos Expenses Taxable Dividend to Shareholder ndash Deductible to No One (Key Carpets v Comm TCM 2016-30 (022516)) 9mdash25

sect385 Advances by Shareholder Were Not Loans But Investments in Equity ndash Lack of Loan Documentation and Related Protocol Doesnrsquot Get You Far (John M Sensenig and Alta Z Sensenig pro sese v Comm TCM 2017-1 (010317)) 9mdash25

Exempt Organizations 9mdash25

sect501(c)(3) Organization Denied Tax Exempt Status Denied Because Organization Gave Money to Specific Family Rather Than Indefinite Class of Individuals (LTR 201738012 063017)) 9mdash25

sect501(c)(3) Organizationrsquos Tax Exempt Status Revoked Because Organization Failed to File Form 990 and Comply with IRSrsquos Info Requests in Connection with IRS Exam (LTR 201738013 (032917)) 9mdash25

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

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2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

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2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

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2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

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2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 42: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

10mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 10 S Corporations

Table of Contents

2019 Form 1120S Draft (093019) 10mdash1

Ruling ndash Termination of S Corp 10mdash2

Form 1120S 10mdash3

IRS Ceases to Issue S Corp Guidance 10mdash3

C Corp vs Non-C Corp 10mdash3

TCJA ndash S Corp Conversions to C Corp 10mdash4

Should You Switch from C to S Corp 10mdash4

S Corp Stock Basis 10mdash5

Basis in S Corp Stock and Debt 10mdash5

No Basis for Guaranty of Debt by Shareholder 10mdash5

S Corporation Tax Structure 10mdash5

S Corp Reasonable Compensation 10mdash5

Loan vs Salary 10mdash6

S Corp Reasonable Comp ndash Bye Bye Tax Court 10mdash7

Assignment of Income 10mdash7

sect199A Planning 10mdash7

S Corp Return Due Dates 10mdash7

Income Tax Return Due Dates 10mdash7

Tax Return Extension Periods 10mdash8

FBAR 10mdash8

S Corp Late File Penalty 10mdash8

If 1120S is late filed base penalty is $200shareholdermonth (not to exceed 12 months) ($195 for 2016 returns) ($200 for 2017 and 2018 returns) 10mdash8

If tax is due base penalty is added to with more penalty 10mdash9

S Corp Failure to Furnish Information Timely 10mdash9

Requesting Penalty Relief (IRM 201135 (11-25-2011)) 10mdash11

First Time Abate (FTA) (IRM 2011361 (08-05-2014)) 10mdash12

Built In Gains Tax 10mdash12

PATH Act Makes 5 Year Built In Gains Recognition Period Permanent (PATH Act sect127) 10mdash12

Built In Gains Tax Basics 10mdash13

Later Spike in Value of Asset After Date of Conversion from C Corp to S Corp Not Built In Gain Taxable ndash Itrsquos Value on Date of Switchover That Counts ndash Tax Court Liked Taxpayerrsquos Arguments and Appraiser Better ndash Be Careful What You Disclose

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2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

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2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

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2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

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2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

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2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 43: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

10mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

as ldquoBuilt In Gainrdquo on 1120S for Year of Conversion (Ringgold Telephone Company v Comm TCM 2010-103 (051010)) 10mdash14

Termination of S Election 10mdash16

Automatic Termination 10mdash16

Revocation 10mdash16

sect1362(f) Inadvertent Termination of S Election Not Fatal ndash Trust Had Become Ineligible Shareholder ndash Since S Corp Complied with LTR Criteria and Paid $400 User Fee All is Forgiven ndash S Election Lives to See Another Day (LTR 201739007 (062717)) 10mdash17

sect1362 Excess Net Passive Income Tax 10mdash17

sect1362 Rental Income from Actively Managed and Maintained Medical Buildings Not Passive Investment Income for Sting Tax Purposes ndash How Much Less Could a Landlord be Involved and Still Dodge the Bullet (PLR 201725022 (062317)) 10mdash18

sect267 Deferral of Deductions for Related Persons 10mdash18

sect267 Defers S Corprsquos Deductions for Accrued Unpaid Payroll Expenses to Year Pay Received and Includible by ESOP Employees ndash sect267(a)(2) Defers Deductions for Expenses Paid to Related Person Until Payments Included in Income by Related Person (Steven M Petersen and Pauline Peterson v Comm 148 TC No 22 (061317)) 10mdash18

S Corps and Charitable Contributions (PATH Act sect115) 10mdash18

Assignment of Income Doctrine 10mdash18

Financial Plannerrsquos Income Taxed to Him Personally Not to His S Corp ndash Payer of Income Did Not Contractually Recognize S Corp ndash Assignment of Income Doctrine Prevented Shift ndash SE Taxes and Other Carnage Result (Ryan M Fleischer v Comm TCM 2016-238 (122916)) 10mdash18

S Corporation Reasonable Compensation 10mdash20

sectsect3121 3301 California Real Estate Broker S Corp Gets Stuck With Reasonable Salary Employment Tax Assessment on Part Not All of Distribution ndashTax Court Engages in ldquoSplit-the-Babyrdquo Analysis ndash Tax Court ldquoShort Sheetsrdquo IRS Expertrsquos Higher Salary Estimate to Lower (from $100755 ($4844hr) to $83200 ($40hr) of $240000 Distribution) ndash Percentage of Gross Receipts Test (To Arrive at Salary) Rejected Facts and Circumstances Test Adopted (Sean McAlary Ltd Inc v Comm TCS 2013-62 (081213)) 10mdash20

sect3121 Payments of Shareholderrsquos Personal Expenses Were Repayments of Loans (Early On) and Return of Capital Contributions (Later On) ndash Though Promissory Note Protocol Not Followed Perfectly Substance and Backstory Avoided Major Employment Tax Disaster ndash Glory Day (Scott Singer Installations Inc v Comm TCM 2016-161 (082416)) 10mdash20

sect3121 Action on Decision IRB 2017-15 (041017) Subject Scott Singer Installations Inc v Comm TCM 2016-161 ndash Agree in Result Only (AOD 2017-04 IRB 2017-15 (041017)) 10mdash23

sect3121 Draws from Out of Control S Corp Law Firm Were Repayments of Capital Contributions ndash Not Loan Repayments (No One in Right Mind Would Have Lent) ndash Not Salary Either (Law Firm Horribly Unprofitable) (Goldsmith amp Associates Ltd v Comm TCM 2017-20 (012617)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

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2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

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2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 44: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

10mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7426 6201 No Tax Court Jurisdiction for Additional Employment Tax Asserted Against Officer Employee ndash District Court or Court of Claims Are the Leftover Choices ndash Tax Court Only Has Jurisdiction Over Employment Tax Worker Classification Actual Controversies (Notice of Employment Tax Determination under sect7436 - Additional Compensation to Officer Employees (PMTA 2017-005 (033017)) 10mdash23

Phantom Income 10mdash23

sectsect460 1366 50 Shareholder Liable for Income Tax on $451531 of Income He Didnrsquot a Penny Of ndash Wording of Settlement Agreement Between He and Other Shareholder Wasnrsquot Tight Enough to Avoid the Problem ndash His Own Brother (the Other 50 Shareholder) Threw Him Under the Bus (and Then Backed Up and Ran Over Him a Few More Times) ndash Completed Contract Method Bunching Up Income at the End Poured Fuel on the Fire ndash Itrsquos Too Late to Cry About It Later in a Collection Hearing ndash A Buy Sell Agreement Entered a Long Time Ago Could Have Helped Mightily (Michael Howard Dalton pro se v Comm TCM 2017-43 (031317)) 10mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

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2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

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2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 45: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

11mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 11 Disregarded Entities

Table of Contents

Prospectively Watch Out for CPAR 11mdash1

Tax Preparer Penalties 11mdash1

Disregarded Entities Are Disregarded for Federal Income Tax But Not Other Purposes 11mdash1

Disregarded entities are not disregarded for all purposes 11mdash1

Disregarded for federal income tax but not for other purposes 11mdash1

Disregarded entities donrsquot follow the beaten path 11mdash2

Disregarded or regarded The color of the chameleon depends on the context within which you find it 11mdash2

What is a ldquodisregarded entityrdquo 11mdash2

Punch line 11mdash2

DE Federal Income Tax vs Other 11mdash2

Three Types of Disregarded Entities 11mdash2

Tax Recognition of an Entity Disregarded for Income Tax Purposes 11mdash3

DE Was a Regarded Entity in a Prior Period 11mdash3

DEs and Employment Taxes 11mdash3

DE (for Income Tax Purposes) Regarded for Administration Assessment and Collection of Employment and Excise Taxes 11mdash3

DE treated as separate Corp for employment and excise tax administration assessment and related reporting 11mdash3

Employment tax payment and reporting on DErsquos shoulders 11mdash3

Taxpayer Identification Numbers (TIN) and DEs 11mdash4

Beware the income tax K-1 TIN trap 11mdash4

Employment Taxes and DE as Partner in Partnership 11mdash4

Temp Regs Take Position Partner Cannot be Employee of DE Owned by Partnership (TD 9766 (050416)) 11mdash4

New Temp Regs Confirm in IRSrsquo View Rev Rul 69-184 is Good Law (TD 9766 (050416)) IRS doesnrsquot like partners in partnerships to receive W-2s See Rev Rul 69-184 1969-1 CB 256 (written before the advent of DEs and sect3017701-2(c)(2)(iv)(A)) 11mdash4

Employment Tax Liability and Collection Issues 11mdash4

Liability for predecessor entityrsquos taxes 11mdash4

Liability shield for non-trust fund employment taxes for multimember LLC 11mdash5

sectsect6651(a)(1) (2) and 6656(a) Failure to Tend to Payroll Taxes Leads to Failures to File Pay and Deposit Penalties ndash Delegating to a Weak Employee Wonrsquot Get You Far ndash At Least Since Itrsquos Post-2008 Employment Taxes Minnesota SMLLCrsquos Owner

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2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

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2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

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2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

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2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 46: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

11mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Not on Hook Personally for All of It (Xibitmax LLC v Comm TCM 2017-133 (070517)) 11mdash5

DEs Regarded for Foreign Asset Reporting Purposes 11mdash5

DEs Subject to FBAR Reporting Requirements 11mdash5

IRS Form 5472 Reporting Requirements Expanded to Include Domestic Disregarded Entities Owned by a Foreign Person (sect16038A-1(c) 26 CFR 16038A-1(c) TD 9796 (effective for taxable years of reporting disregarded entities beginning after 123116 and ending on or after 121317)) 11mdash5

Form 5472 historically applies to Corps now to DEs as well 11mdash6

Final regulations treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for reporting purposes 11mdash6

Reportable information 11mdash6

DE might have to file both Form 5471 and 5472 11mdash6

Reportable transactions 11mdash6

DEs Regarded for Gift Tax Valuation Purposes 11mdash6

SMLLC Regarded for Gift Tax Valuation Purposes (Pierre v Comm 133 TC 24 (082409)) 11mdash7

sect2053 Decedentrsquos Estate May Not Deduct Gift Tax Liability Which Donees Agreed to Pay For ndash Yet Gift Tax Included in Gross Estate ndash Who Bears Liability for Resulting Additional Estate Tax Read Agreements with Donees Decedentrsquos Will and State Law ndash Surviving Spouse Saddled With It (Estate of Sheldon C Sommers v Comm 149 TC No 8 (082217)) 11mdash7

DEs and Estate Tax Liens 11mdash9

Form 4422 Newly Revised (IRS Form 4422 (March 2017)) 11mdash9

Discharge of Estate Tax Lien ndash IRS Changes Internal Procedure ndash Interim Guidance (SBSE-05-0417-0011 (040517)) 11mdash9

Considerations Regarding Estate Tax Lien Discharge Applications 11mdash9

DEs and Discharge of Indebtedness 11mdash10

Creditor Discharge of Indebtedness of DE 11mdash10

Discharge by creditor of DE debt is sale proceeds not COD income to DErsquos owner 11mdash10

But if the DErsquos owner purchases the debt from the creditor COD might result 11mdash10

sect108 Exclusions ndash The Basics 11mdash10

If the sect108 exclusion relies on status of the taxpayer whether a DE is involved matters 11mdash10

IRS Final Regs Take Position Owner Must Be in Bankruptcy or Insolvent To Be Entitled to sect108(a) Relief (TD 9771 (Effective 061016)) 11mdash11

DEs and Charitable Contributions 11mdash11

Allocation of Partnership Liabilities for DE as Partner in Partnership 11mdash11

sect707 Liabilities Assumed by Partnership (Through a Disregarded Entity (DE)) in Connection with Partnershiprsquos Transfer of Substantially All of Its Assets and Liabilities to Partnership Constitute Qualified Liabilities for Purposes of Disguised Sale Rules ndash Thus Not a Taxable Event (PLR 201714028 (040717)) 11mdash11

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2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

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2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 47: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

11mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Partnership Late Filing Penalty When DE is Partner 11mdash12

DEs and Like Kind Exchanges 11mdash13

Like kind exchanges 11mdash13

Interests in DEs can be like kind traded for assets and visa versa 11mdash13

If assets owned by DEs are part like kind and part not like kind better to trade assets themselves than to trade DEs 11mdash13

Transfer of Asset for Asset 11mdash13

DEs and Accounting Methods 11mdash13

Disregarded Entity Was Separate Trade or Business Entitled to Use Own Accounting Method (CCA 201430013) 11mdash14

DE State Law Issues 11mdash14

Reverse Veil Piercing 11mdash14

State laws vary as to reverse veil piercing 11mdash14

Reverse veil piercing in Colorado 11mdash14

Reverse veil piercing in California 11mdash14

DEs and Husband and Wife Owned Entities 11mdash14

Husband wife owned entity in community property state can be either DE or partnership 11mdash14

Joint return not required 11mdash15

Non-community property states 11mdash15

DEs LLCs and Divorce 11mdash15

Restrictions on transfer of LLC membership rights and obligations upheld 11mdash15

C Corps and DEs 11mdash15

DEs widely used to facilitate corporate reorganizations 11mdash15

Use of DE preserves tax loss still gets the job done to get subrsquos asset into Parentrsquos hands 11mdash15

DEs Facilitate Many Different Types of Reorgs 11mdash15

A Reorganization 11mdash15

Comparison of QSubs and Single Member LLCs 11mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 48: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

12mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 12 Partnerships and LLCs

Table of Contents

Negative Capital Account Reporting 12mdash1

Tax Gap Mostly Driven by Underreporting 12mdash2

K-1 Matching Falls Short 12mdash2

2019 Form 1065 Schedule K-1 Draft (093019) ndash Changes from 2018 12mdash4

2019 Form 1065 Schedule K-1 12mdash5

2019 Form 1065 Draft (093019) 12mdash5

2019 Form 1065 Page 3 Draft (093019) 12mdash6

2019 Form 1065 Schedule K-1 Draft (093019) 12mdash6

Basis in Partnerrsquos Partnership Interest Bottom Dollar Guarantees 12mdash10

Disguised Sale of Partnership Interest Partnerrsquos Debt Basis 12mdash10

Notice of Inconsistent Treatment 12mdash10

sect704(d) Basis 12mdash11

Partnership Reasonable Compensation 12mdash11

C Corp vs Non-C Corp 12mdash12

Centralized Partnership Audit Rules 12mdash13

TCJA - sect199A Pass-Through Deduction Centralized Partnership Audit Rules 12mdash13

IRS Audit Stats 12mdash13

IRSrsquos Struggle to Audit Tiered Partnerships 12mdash14

IRSrsquo Problem Congressrsquo Solution 12mdash14

Centralized Partnership Audit Rules (CPAR) 12mdash14

Prior Law 3 Partnership Audit Regimes 12mdash14

CPAR Roadmap 12mdash15

Effect of New CPAR Rules 12mdash15

CPAR ndash Default Rule 12mdash15

CPAR ndash Example of 2018 Audit 12mdash15

CPAR ndash Highway and Exit Ramps 12mdash16

Imputed Underpayment 12mdash16

Imputed Underpayment vs No Imputed Underpayment 12mdash16

Imputed Underpayment and Netting 12mdash16

IU Netting ndash Separately Stated Items on K-1 12mdash17

Imputed Underpayments and Credits 12mdash17

IU and Reallocation Between Partners 12mdash17

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2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

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2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 49: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

12mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Imputed Underpayment and Separate Limitation Rules 12mdash18

AICPA Requests Delayed Effective Date 12mdash18

How Does CPAR Affect Capital Accounts 12mdash18

Partnership Agreement Provisions re Imputed Underpayment 12mdash19

Early Election into CPAR Available 12mdash19

CPAR Applies to Entities Filing Form 1065 12mdash19

Scope of CPAR Rules 12mdash19

CPAR Highway and Exit Ramps 12mdash20

Exit Ramp 1 Partnership ldquoElects Outrdquo of CPAR 12mdash20

Exit Ramp 1 Tiered Partnerships 12mdash21

Exit Ramp 1 Tiered Partnership Example 12mdash21

Exit Ramp 1 CPAR Elect Out Keeping Perspective 12mdash22

Exit Ramp 1 Effect of Elect Out 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Partners ldquoAmend Outrdquo via Amended Returns or ldquoPull Inrdquo 12mdash22

Exit Ramp 2 Alternative to Amend Out = Pull In 12mdash23

Exit Ramp 2 Partners Amend Out or Pull In 12mdash23

Exit Ramp 2 Reallocations Among Partners 12mdash23

Exit Ramp 2 ldquoAmend Outrdquo or ldquoPull Inrdquo Deadline 12mdash24

Exit Ramp 2 Partnershiprsquos Not Partnerrsquos Statute of Limitations (SL) Controls 12mdash24

Exit Ramp 2 Adjustments Binding to Partnerrsquos Tax Attributes 12mdash24

Exit Ramp 2 Amend Out or Pull In for Tiered Structures 12mdash24

Exit Ramp 3 Partnership Elects ldquoPush Outrdquo 12mdash26

Exit Ramp 3 Push Out May Increase or Decrease a Partnerrsquos Tax 12mdash27

Exit Ramp 3 Partnership Elects Push Out 12mdash27

Exit Ramp 3 Push Out Treatment of Pass-Through Partners in Tiered Structures 12mdash27

Exit Ramp 3 IRS Penalties re Push Out Statements 12mdash28

Exit Ramp 3 IRS Penalties re Push Out Statements in Tiered Structures 12mdash28

Imputed Underpayment - Modification 12mdash28

CPAR ndash Example of 2018 Audit 12mdash29

CPAR Highway ndash Flow of Procedure 12mdash29

CPAR ndash Example of 2018 Audit 12mdash29

Adjustment Year 12mdash29

Admin Adjustment Request by Partnership 12mdash29

CPAR ndash Who Can File Amended Return 12mdash29

Time Line - IRS Notice Requirements 12mdash30

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 50: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

12mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Time Line ndash Deficiency Assessments 12mdash30

Judicial Review 12mdash30

Imputed Underpayment 12mdash30

Deposit to Suspend Interest on Imputed Underpayment 12mdash30

Assessment and Collection of Imputed Underpayment 12mdash30

If Partnership No Pays IU IRS Can Go After Partners 12mdash31

Partnership Representative 12mdash31

Agreements Affected by CPAR 12mdash32

Effect on Partnership Agreements 12mdash32

Partnership and LLC Agreements 12mdash32

Should Partnershiprsquos Accountant be Partnership Representative 12mdash32

Agreement Provisions re PR 12mdash32

Partnership Agreement Provisions re Imputed Underpayment 12mdash33

Partnership Agreement Provisions re Election Out 12mdash33

Agreement Provisions Push Out Election 12mdash33

Other Agreements Affected 12mdash33

How Best to Prepare 12mdash34

CPAR ndash California Climbs Aboard 12mdash34

Appendix State Conformity (or Not) with CPAR 12mdash35

1065 Due Dates 12mdash36

Penalties for Late Filing 12mdash37

If 2017 1065 is late filed base penalty remains $200shareholdermonth (not to exceed 12 months) ($200 for 2016 returns) 12mdash37

Partnership Failure to Furnish Information Timely 12mdash37

FBAR Due Dates 12mdash37

Partnership or Not 12mdash37

sect704 Partnership or Not Nigerian Engineer Got What He Wanted Tax Court Found Existence of Partnership with His Brother ndash Also Got What He Didnrsquot Want Deductions Disallowed Because No Proof of Basis ndash In Absence of Partnership Agreement Partnership Established by Credible Testimony (Chinweike Nwabasili pro se v Comm TCM 2016-220 (120516)) 12mdash37

TEFRA 12mdash37

sectsect6221-6234 (TEFRA) and 6662 IRS Could Assert and Tax Court Could Uphold Negligence Penalty Against Partner Who Failed to Report Partnership K-1 Income on Personal Return and Did Not File Notice of Inconsistent Treatment (Bernard P Malone and Mary Ellen Malone v Comm 148 TC No 16 (050117)) 12mdash37

sect704(d) Basis 12mdash38

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Membership Unit (ie Partnership Interest) (William Namen v Comm TCM 2017-24 (013117)) 12mdash38

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 51: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

12mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect704(d) Loan Agreements and Generalized Testimony Insufficient to Establish Basis in LLC Member Unit ndash Itrsquos Not Such a Great Idea to Fail to Allocate Liabilities Among Partners on 1065 K-1s (Bobby R Hargis and Brenda J Hargis v Comm TCM 2016-232 (122116)) 12mdash39

IRS Partnership Audit Guide re Basis (IRS MSSP Audit Guide (ATG) Partnerships) (3123-017) 12mdash40

ISSUE PARTNERrsquoS BASIS IN PARTNERSHIP INTEREST 12mdash40

Outside basis maintained by each individual partner outside of the partnership books 12mdash40

Outside basis is calculated at the end of the partnership tax year 12mdash40

Basis cannot be negative Disallowed losses carried forward 12mdash41

Basis measures the partnerrsquos tax goody in the partnership 12mdash41

Withdrawals by partner reduce partnerrsquos outside basis 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero and) gain results 12mdash41

If partner withdraws cash in excess of basis (basis reduced to zero) gain deferred 12mdash41

If partnership interest is disposed of and partner receives more or less than partnerrsquos basis gain or loss results 12mdash41

If partnerrsquos share of losses exceed partnerrsquos outside basis losses suspended and carried forward 12mdash41

Partner may have basis even if book capital account is negative 12mdash41

ISSUE PARTNERSHIPrsquoS BASIS IN ITS ASSETS 12mdash42

Inside basis is the partnershiprsquos tax basis in its assets 12mdash42

At inception the partnershiprsquos inside basis equals all partnersrsquo outside basis 12mdash42

Later events may cause inside and outside basis to drift apart 12mdash42

But a sect754 election may eliminate discrepancies 12mdash42

Examination Techniques 12mdash42

Issue Identification 12mdash43

Documents to Request 12mdash44

Interview Questions 12mdash44

Deemed Sale of Partnership Interest 12mdash44

sect731(a) Taxable Gain Resulted from Deemed Sale of Partnerrsquos Partnership Interest ndash Payment by Partnership on Partnerrsquos Behalf (of Partnerrsquos Personal Expenses) Exceeded Partnerrsquos Basis in Partnership Interest (Reza Zia-Ahmadi and Rachelle L Zia-Ahmadi pro se v Comm TCS 2017-39 (061417)) 12mdash45

sect752(b) Partnerrsquos Drop in Partnership Liabilities Followed by Deemed Distribution Yields Taxable Event (Michael E Kohn and Catherine K Kohn pro sese v Comm TCM 2017-159 (081417)) 12mdash45

Charitable Contributions and Partnerships 12mdash46

sect170 Charitable Contribution Appraisal Substantial Compliance ndash Part Sale Part Gift Upheld (Cave Buttes LLC v Comm 147 TC No 10 (092016)) 12mdash46

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 52: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

12mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

SE Tax and LLCs 12mdash47

Partnerships LLCs SE Tax and W-2s 12mdash47

Payments from Partnership to Partner ndash 3 Categories 12mdash47

SE Tax - Employee or Partner 12mdash47

Partners including LLC members are not employees 12mdash47

Self-Employment Tax for Partners 12mdash47

Investment Management Partners Not Exempt from SE Tax - Partners pay SE tax on distributive shares of business income unless an exception applies To be a limited partner income in the form of a return on investment and not compensation for active participation in the partnerships business operations Being service partners in a service partnership sunk their boat (CCA 201436049 (090514)) 12mdash48

NM Federal District Court ldquoGeneral Memberrdquo of LLC Treated as a Partner Subject to SE Tax ndash W-2 Wages LLC Paid To the ldquoPartnerrdquo Inappropriate (Riether v US 919 F Supp 2nd 1140 (DNM 062112)) 12mdash48

LLC Member Received Guaranteed Payments Subject to Self-Employment Tax (Lauren A and Michael H Howell v Comm TCM 2012-303 (110112)) 12mdash48

SE Taxes and sect1402(a)(13) Limited Partner Exception 12mdash49

sectsect469 1402 Physicianrsquos Distributive Share of Income from Multimember Surgical Center LLC Was Passive and Separate Activity from Medical Practice ndash Physician Was Limited Partner for SE Tax Purposes Under sect1402(a)(13) and Thus Not Subject to SE Tax (Stephen P Hardy v Comm TCM 2017-16 (011717)) 12mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 53: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

13mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 13 IRS Practice and Procedure

Table of Contents

Passports 13mdash1

IRS Therersquos a New Sheriff in Town 13mdash1

IRS 13mdash1

Cyber Security Grim Reaper 13mdash2

2020 IRS Form W-12 PTIN Application Question 12 Data Security Responsibilities 13mdash2

Cyber Security IRS Pub 4557 13mdash3

Cyber Security FTC Safeguards Rule 13mdash3

Cyber Security Safeguards Rule Checklist 13mdash3

Cyber Security But Does IRS Follow Its Own Advice 13mdash8

IRS PTIN Fees Here We Go Again 13mdash10

Treasury Priority Guidance Plan 2019-2020 13mdash10

IRS Update 13mdash14

ITINs 13mdash14

IRS TCJA Training Materials for IRS Examiners 13mdash15

IRS TCJA Training Materials Excise Tax Exemption for Aircraft 13mdash15

IRS TCJA Training Materials Small Business 13mdash16

Just Say No to Drugs and IRSrsquos Private Debt Collectors 13mdash17

IRS Collection Private Debt Collectors with a Twist 13mdash17

2018 IRS Data Book 13mdash17

IRS Customer Service 13mdash18

IRS Announces Rolling Out of ChatBot 13mdash18

Passports and Delinquent Taxes 13mdash18

Amended Returns 13mdash19

Retaliation Against an IRS Employee 13mdash19

Skimming Cash and Freedom 13mdash20

Some Rules You Kind of Need to Follow 13mdash21

sect7206 ndash Willful Filing of False Return Even if Tax Liability Stays Low 13mdash21

Electronic Acknowledgement of Timely Filing 13mdash21

Criminal Corner 13mdash23

North Carolina Doctor Lands One Year in Jail 13mdash23

West Virginia County Magistrate Sentenced to Prison for Not Reporting Bribes from Bail Bondsman 13mdash23

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 54: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

13mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

West Virginia Bail Bondsman Gets 3 Years Probation for ldquoImpeding Tax Collectionrdquo and Not Filing Return 13mdash23

Alaskan Commercial Fishing Couple Charged with Willful Failure to Pay Over $400000 in Income Taxes on Income Earned for 13 Years (Department of Justice Press Release 17-736 (072617)) 13mdash23

Expansion of IRS Exam to Other Years 13mdash24

Passports and Taxes 13mdash24

Application of Tax Payments 13mdash25

Circular 230 ndash OPR Prosecutions of Tax Practitioners 13mdash26

IRS Criminal Prosecution 13mdash26

Penalty Abatement 13mdash26

Identity Theft 13mdash27

Identity Theft ndash ldquoNew Clientrdquo Email Scam 13mdash27

Criminal Prosecution of Employment Tax Non-Compliance 13mdash27

When Collect Employment Tax But Donrsquot Pay 13mdash27

IRS Criminal Investigation 13mdash28

IRS Collection 13mdash28

IRS Collection ndash Allowable Living Expenses 13mdash28

IRS Collection ndash Private Collection Agencies 13mdash28

Tax Preparer Penalties 13mdash28

Refund Claims 13mdash29

sect7422 6402 New Yorker Denied $800000 Refund for NOL Carryback ndash Form 1040X Not Used ndash Form 1045 Application for Tentative Refund Did Not Cut It ndash Is It a Good Idea for Anyone to Use a Form 1045 Likely Not (David B Silipigno v United States 115-CV-0017 (ND NY (071217)) 13mdash29

sectsect7422 6511(b)(2)(A) Return Omitting Income Was Invalid to Constitute a Claim for Refund Even Though IRS Knew of Missing Items ndash It Appears a Tax Preparer Must Obtain IRSrsquos IRP File (W-2 1099 K-1 1098 etc Matching File) to Make Sure Everything is Listed Every Time (Anthony J Kiselis pro se v US Ct Claims No 1-15-cv-00380 131 Fed Cl 54 (032017) 13mdash29

Offset of Refunds by IRS 13mdash30

sect6402 Overpayment Reflected on Original Form 1040 Promptly Offset Against Prior Deficiency Not Available Later to Pay Subsequent Additional Assessment ndash Beware the Refund Reaper that Robs You of What You Currently Need (Robert Williams pro se v Comm TCM 2017-182 (091817)) 13mdash30

IRS Disaster Relief 13mdash30

IRS Webpage Tax Relief in Disaster Situations (webpage) 13mdash30

Planning for Disasters 13mdash30

IRS Advises Taxpayers to Prepare for Hurricanes Floods and Other Natural Disasters (IR-2016-128) 13mdash30

Update Emergency Plans 13mdash31

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 55: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

13mdashiii

copy 2019 Bradley Burnett Tax Seminars Ltd

Create Electronic Copies of Key Documents 13mdash31

Document Valuables 13mdash31

Check on Fiduciary Bonds 13mdash31

IRS ready to help in event of federally declared disaster 13mdash31

Confidentiality - Identity Theft and Tax Fraud 13mdash31

Unauthorized Disclosure by Tax Preparer 13mdash31

sect7216 Unlawful Disclosure 13mdash32

Circular 230 and Malpractice Exposure 13mdash32

Cyber Security 13mdash32

Safeguarding Tax Data 13mdash33

IRS Pub 4557 (Rev 10-2015) ndash Safeguarding Taxpayer Data (A Guide for Your Business) 13mdash33

Protect Your EFIN and PTIN 13mdash34

Due Diligence and Tax Credits 13mdash34

PATH Act Expands Due Diligence Requirements (beyond EITC) to ACTC and AOTC 13mdash34

Applicability of penalty broadened and penalty amount increased 13mdash34

Form 8867 Paid Preparers Checklist 13mdash34

IRS Issuing Injunctions Against Problem EITC Preparers 13mdash34

25000 To Get Letter from IRS About 2014 EITC 13mdash34

Acknowledgement Alerts about Missing Forms 8867 13mdash34

IRS to Release EITC Warning Letters 13mdash35

Consequences of failure to meet due diligence requirements 13mdash35

IRS Sending Tax Preparers Due Diligence Letters 13mdash35

sect6695 State of Washington CPA Failed to Perform EITC Due Diligence on 14 Tax Clients ndash At $500 a Pop $7000 Penalty Got Pricey ndash Referral to Director of OPR Stung Quite a Little Bit Too (Abdiwali Suldan Mohamed pro se v Comm TCS 2017-69 (082917)) 13mdash35

Change of Address and Responsible Person 13mdash36

sectsect6320 6330 One Day Late and Thousands of Dollars Short ndash Donrsquot Miss Your Collection Due Process (CDP) Filing Deadline by One Day Yoursquoll Get Your Head Handed to You ndash Seller of Construction Company Liable for Taxes Incurred After He Sold Company (Eric L Cox pro se v Comm TCS 2016-53 (090616)) 13mdash36

Proof of Mailing Extension 13mdash38

sectsect6081 6651 Late Filing Penalty Sticks ndash Extension Not Valid Where CPA Did Not Certified Mail Extension Otherwise Had No Proof of Sending and Did Not Testify at Trial to Shore Up the Gaps (Jarold R Laidlaw and Diane Laidlaw v Comm TCM 2017-167 (082817)) 13mdash38

Private Delivery Services 13mdash39

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 56: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

13mdashiv

copy 2019 Bradley Burnett Tax Seminars Ltd

sect7502(f) IRS List of Approved Private Delivery Services Updated AGAIN ndash DHL Added But FedEx and UPS Ground Remain Conspicuous by Absence (Notice 2016-30 2016-18 IRB) 13mdash40

sect6404(e) No Abatement of Interest Where Illinois Couple Being Audited Drug the Audit Out for a Long Time ndash Interest Abatement Not Available Unless Unreasonable Error or Delay by IRS in Performing a Ministerial or Managerial Act (Terry E Hornbacker and Georgia R Hornbacker pro sese v Comm TCM 2016-65 (041416)) 13mdash40

Internal Revenue Manual re IRS Interest Abatement 13mdash40

20274 (04-27-2016) IRC 6404(e)(1) Unreasonable Error or Delay in Performing a Ministerial or Managerial Act 13mdash41

IRM 202741 (05-09-2014) IRC 6404(e)(1) Criteria 13mdash41

Penalty Abatement 13mdash42

sect6651(a)(2) Waiting on Accountant to Repair Incorrectly Prepared Tax Return Grounds to Abate Failure to Pay Penalty Nope ndash So What Was the Poor Client Supposed to Do Yank Task from Preparer and Go Elsewhere (Allen B Miller v Comm TCM 2016-73 (042116)) 13mdash42

sectsect7491 6662 and 6651 Sole Proprietor Liable for Income Tax Accuracy Penalty and Late Filing Penalty Even Though His AccountantAttorney Stole His Money and Business Records ndash Burden of Proof on Taxpayer ndash He Did Not Prove He Had Good Records Before They Were Stolen (James E Philbrick pro se v Comm TCM 2016-64 (041316)) 13mdash42

Retention of Tax Records 13mdash42

Retention of Tax Records (IRS online narrative How long should I keep records Page Last Reviewed or Updated 24-Jan-2017) 13mdash42

Such narrative contains the exact language referenced in the James Philbrick court case above 13mdash42

How long should I keep records 13mdash42

Period of limitations that apply to income tax returns 13mdash43

Are the records connected to property 13mdash43

What should I do with my records for nontax purposes 13mdash43

sect6330 IRS Guidance Says Go Ahead and Shred Your Tax Records Generally After 3 Years ndash California Couple Finds Out You Can Really Get Your Head Handed to You For Doing That ndash IRS Has 10 Years to Collect Tax ndash If You Cannot Prove You Paid Tax 7 Years Ago You Can Pay It Again (William Henry Paynter and Elizabeth A Paynter pro sese v Comm TCS 2017-12 (030817)) 13mdash44

Offers In Compromise 13mdash44

sect6015 Husband Left Holding Joint Income Tax Bag After IRS Granted Wife OIC Relief as Marriage Rolled On (Eric Alan Harris pro se v Comm TCS 2017-77 (100317)) 13mdash44

Miscellaneous IRS Practice Topics 13mdash44

sect6109 ITIN Expiration Dates Tweaked by IRS (sect6109 IRS General Information Form W-7 Instructions) 13mdash44

sect6334(a)(2) and (3) Property Exempt from Levy 13mdash45

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 57: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

13mdashv

copy 2019 Bradley Burnett Tax Seminars Ltd

Innocent Spouse 13mdash45

sect6015(f) Equitable Relief 13mdash45

sect6015(f) Innocent Spouse Equitable Relief Awarded to Louisiana Widower to Abate Late Filing and Late Payment Penalties and Interest ndash His Late Wife Failed to Mail Return to IRS Three Years Before and He Didnrsquot Know It (Joseph Patrick Boyle pro se v Comm TCM 2016-87 (050216)) 13mdash45

Fixing Americarsquos Surface Transportation (FAST) Act (HR 22) 13mdash45

Tax Collection and Passports 13mdash45

sect7345 Revocation or Denial of Passports to Certain Delinquent Taxpayers 13mdash45

Collection Due Process Cases 13mdash46

sect6330 IRS Appeals Did Not Improperly Reject OIC ndash Dissipated Assets Though No Longer Available Used Against Taxpayer ndash Amount of Future Income to be Used Against Taxpayer Also Explored - And What is Chutzpah Anyway (John N Alphson v Comm TCM 2016-84 (050216)) 13mdash46

sect6330(d)(1) IRS Properly Rejected OIC (Offer In Compromise) ndash Reasonable Collection Potential Was Triple the Amount Offered - Taxpayer Did Not Prove Liquidation of Its Accounts Receivable Would Be Detrimental to Its Survival (David Strong v Comm TCM 2016-70 (041916)) 13mdash47

Treasury Offset Program 13mdash47

sectsect6402(d)(1) 6330 No CDP Hearing Relief Available to Block ldquoTreasury Offset Programrdquo Seizure of IRS Refund ndash Disgruntled Debtor Barking Up the Wrong Tree (Gary I Terry pro se v Comm TCM 2016-88 (050316)) 13mdash47

How the US Government Collects Delinquent Debt 13mdash48

How the Treasury Offset Program (TOP) Works 13mdash49

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 58: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

14mdashi

copy 2019 Bradley Burnett Tax Seminars Ltd

Chapter 14 Special Topics

Table of Contents

Electric Car Credit 14mdash1

Electric Car Credit Basics 14mdash1

Electric Car Credit Requirements 14mdash1

Electric Car Credit Phase-Out 14mdash2

Electric Car Credit Compliance Issues 14mdash2

Credit ndash Hybrid and Electric Cars 14mdash3

BBA 2018 ndash Extender Bill ndash Energy 14mdash3

Appropriations Act ndash California Wildfires 14mdash4

Consolidated Appropriations Act ndash California Wildfires (ConApp 2018) 14mdash5

ConApp 2018 ndash California Wildfires 14mdash5

Ag Tax 14mdash6

No SE Tax on CRP Payments Received by Non-Farming Farm Ground Owner (Rollin J and Maureen B Morehouse v Comm 8th Cir No 13-3110 (101014)) 14mdash6

Farm Inputs Stepped Up Basis and Tax Benefit Rule 14mdash10

sectsect162 461 102 1014 Cash Basis Husband Prepaid and Deducted $318000 of Farm Supplies (Expenses) in 2010 and Died in March 2011 ndash Wife Got $235500 Stepped Up Basis in Farm Supplies and Deducted Them Again ndash Yes This Works Just Fine ndash IRSrsquos Effort to Gun It Down Via Tax Benefit Rule Faltered (Estate of Steve K Backemeyer Deceased Julie K Backemeyer Personal Representative v Comm 147 TC No 17 (120816)) 14mdash10

Self Employment Tax and Ag Property Rents 14mdash11

sect1402(a) Lessor of Chicken Coops Not Liable for SE Tax on Rent Portion ndash Since Rent Charged At or Below FMV Services Factor Ignored ndash Tax Court Reverses Course Across the Board to Follow 8th Circuit (Charles D Martin and Laura J Martin pro se v Comm 149 TC No 12 (092717)) 14mdash11

To be self-employment income income must arise from income producing activity subject to SE tax 14mdash11

Rental real estate income generally excluded from net earnings from self-employment 14mdash11

Ag related rental income SE taxable if derived from ldquoarrangementrdquo to produce ag commodities and owner materially participates 14mdash11

McNamara Case 14mdash12

Tax Court Holdings in Martin 14mdash15

Farming Syndicates ndash Might Be Much More Common Than You Think 14mdash16

ldquoFarming Syndicatesrdquo Must Use Accrual Method ndash 5th Circuit in Burnett Ranches Held Partnership with Prominent S Corp Partner Not a Farming Syndicate ndash IRS Nonacquiesces Burnett Ranches (AOD 2017-1 (IRB 2017-7 (021317)) 14mdash16

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu

Page 59: B URNETT FEDERAL TAX€¦ · THE BRADLEY BURNETT FEDERAL TAX UPDATE 2019 By Bradley Burnett Bradley Burnett Tax Seminars, Ltd. J.D., LL.M. (Taxation) Comprehensive Reference Tool

2019 Federal Tax Update

14mdashii

copy 2019 Bradley Burnett Tax Seminars Ltd

Rodeo 14mdash17

sect162 Are Expenses of Teenagers Riding in Rodeos Deductible Of Course They Are When Their Parents in the Horse Boarding Training and Sales Business Are Out to Prove Their Horses Are ldquoKid Saferdquo (Gary C Jr amp Traci W Bryant v State of Alabama Alabama Tax Tribunal Docket No 16-500 (011217)) 14mdash17

Livestock Replacement Due to Drought 14mdash17

Extension of Replacement Period for Livestock Sold on Account of Drought ndash Newly Clarified Extension Period Ends When the Drought Ends (IRS Notice 2017-53 (092717)) 14mdash17

Charitable Contributions of Easements and Qualified Farmers and Ranchers 14mdash18

sect170 Donors of Farm Property Not ldquoQualified Farmersrdquo for Purposes of sect170(b)(1)(E) ndash Proceeds from Sale of Farmland Do Not Constitute Farming Income ndash Consequence Charitable Contribution of Donated Easement Not Deductible Up To 100 of Contribution Base But Rather a Mere 50 (Mark A Rutkoske Sr v Comm and Felix Rutkoske Jr and Karen E Rutkoske v Comm 149 TC No 6 (080717)) 14mdash18

Foreign Earned Income Exclusion 14mdash22

Foreign earned income exclusion amount is $102100 in 2017 ($104100 in 2018) 14mdash22

sect911 23 Percent of Income Earned in Foreign Country Excluded ndash After Qualifying for Exclusion (Under Bona Fide Residence Test) Amount Excluded is Not an ldquoAll or Nothingrdquo Gig (Wendell Wilson and Angelica M Wilson pro sese v Comm TCS 2016-19 (042516)) 14mdash22

Purchase and download the complete Federal Tax Update at httpscpatrendlinescomshopbb18ftu