Federal Tax News – January

By Team HRH | January 25, 2017

Reminder: Due dates for filing Affordable Care Act (ACA) information returns are deferred. The ACA requires health insurance issuers, certain employers, and others that provide “minimum essential health coverage”‘ to provide information statements to covered individuals. The IRS extended some due dates for 2016 ACA reporting requirements. The due date for furnishing to individuals Form 1095-B changed from Jan. 31, 2017, to March 2, 2017. The due date for furnishing to individuals Form 1095-C also changed from Jan. 31, 2017, to March 2, 2017. However, the due date for filing with the IRS Forms 1094-B, 1095-B, 1094-C and 1095-C remains Feb. 28, 2017 (March 31, 2017, if filing electronically).

Penalty tax applies. The accumulated earnings penalty tax is only imposed on a corporation that has earnings and profits accumulated with the purpose of avoiding income tax on its shareholders. In one case, a corporation’s only assets were partnership interests and its only income was pass-through income from the partnerships. In Chief Counsel Advice 201653017, the IRS held that the corporation was a holding or investment company and was liable for the accumulated earnings tax despite the fact that it had no liquid assets and didn’t control the partnerships.

Farm widow wins her case in U.S. Tax Court. The court concluded that a farmer’s widow could deduct expenses for seed, fertilizer and fuel even though they had already been deducted by her late husband. The “tax benefit rule” didn’t require the recapture of deductions for farm supplies claimed by the husband on his Schedule F, “Profit or Loss from Farming.” After his death, his surviving spouse, who acquired the supplies by inheritance, began her own corn and soybean farming business and deducted the expenses on her Schedule F. (Estate of Backemeyer, 147 TC No. 17)

National Taxpayer Advocate’s message to the IRS: Keep it simple. In her annual report to Congress, National Taxpayer Advocate Nina Olson urged the IRS to simplify the tax code and revamp the agency’s “Future State” plan to be more taxpayer-centric. The Future State plan describes how the IRS will operate and interact with taxpayers in five years and beyond and has been criticized for because it will offer less IRS help to taxpayers on the telephone and will direct them instead to IRS.gov for answers. In order “to create an environment that encourages taxpayer trust and confidence,” Olson said, the IRS must “change its culture from one that is enforcement-oriented to one that is service-oriented.

Court finds investments were nondeductible equity and not debt. You can deduct bona fide debt that becomes worthless in the tax year. There must be a bona fide debt arising from “a debtor-creditor relationship based on a valid, enforceable obligation to pay a fixed or determinable amount.” A capital contribution isn’t debt. In one case, a taxpayer made large investments in start-up businesses that he called loans. However, there was very little other equity in the businesses and no loan agreements or repayment demands. The U.S. Tax Court ruled the investments were equity (not debt), weren’t worthless in the year at issue and couldn’t be deducted. (Sensenig, TC Memo 2017-1)

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