Federal Tax News – August

By Team HRH | September 18, 2017

Republican Senators unveil a new Affordable Care Act (ACA) repeal bill. A new bill to repeal and replace the ACA was introduced in the Senate on September 13, with backing from President Trump. Sponsored by Sens. Lindsey Graham (SC), Bill Cassidy (LA), Dean Heller (NV) and Ron Johnson (WI), it could revive Republican hopes of overturning the ACA after the last attempt on 7/28 came up one vote short. The proposed measure would give more health care powers to the states. It would repeal and replace the ACA with a block grant given annually to states to help people pay for health care. The block grant would be subject to a mandatory appropriation. The bill would also protect those with pre-existing conditions. While the bill’s sponsors are optimistic about its prospects, other Republicans doubt the last-ditch effort to repeal the ACA will succeed this year.

Leave-sharing programs give assistance to Hurricane Harvey and Hurricane Irma victims as well as tax relief to donors. Personal, vacation, and sick leave normally represent taxable income for employees. But the IRS announced that employees who donate unused time off to an employer leave-sharing program won’t pay income or payroll tax on the value donated to help Hurricane Harvey and Hurricane Irma victims. Employers contribute the cash value of donated leave to disaster relief programs. Employers don’t get a charitable deduction, but they can deduct the amounts as business expenses. (IRS Notices 2017-48 and 2017-52)

A pilot stationed in Korea fails to land an exclusion. Taxpayers may be able to exclude foreign earned income from gross income, if several requirements are met. In one case, a commercial pilot for a South Korean airline claimed a foreign earned income exclusion, but the IRS disallowed it. The U.S. Tax Court agreed. The pilot failed two key tests: the “tax home” test because his actual home was still in the United States, and the “bona fide residence” test, because he wasn’t present in a foreign country for at least 330 days a year, as required by tax law. (Acone, TC Memo 2017-162)

Pageant parents are denied deductions. A married couple entered their daughter in beauty pageant competitions. During the two years in question, the minor child won $3,175 in cash prizes. The parents incurred $37,177 in expenses, such as travel and outfits, to participate in the pageants. They took deductions on their tax returns and the IRS disallowed them. The U.S. Tax Court ruled the parents weren’t entitled to deduct the expenses because the child’s winnings were compensation for HER services and expenses were deductible only by her. (Lopez, TC Memo 2017-171)

A big-game hunter loses in court. The U.S. Tax Court has held that a taxpayer’s charitable contribution of hunting specimens (animal hides and skulls) should be valued using the comparable sales method and not the replacement cost method that the taxpayer argued for. The donation to an ecological foundation consisted of 177 specimens, none of which were of “record-book” quality. The Court stated a lower rating would have been appropriate. Relying on an appraisal, the taxpayer claimed a charitable contribution deduction of $1,425,900. The IRS valued the donation at $163,000 and the court agreed. (Gardner, TC Memo 2017-165)

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