CPEasy Weekly Tax Update
With E. Lynn Nichols, CPA
AUGUST 31, 2015
CITATIONS
1. IRS Clarifies When Outside Basis Is Partnership Item
In e-mailed advice, the IRS advised that outside basis is a partnership item when a
partnership makes a section 754 election because the partnership itself needs to
determine its partners' outside bases to redetermine the partnership's inside basis for its
tax year.
(ECC 201534010; 8/21/2015)
2. Investment Partners Properly Treated Income as Capital Gain
A U.S. district court refused to order two partners in an investment company to return tax
refunds to the government, finding that the partners managed property in which they
owned an interest and earned a profit for their work from its sale; thus, the partners
properly characterized the income as capital gain, not as a commission.
(United States v. David W. Stewart et al.; USDC S TX; No. 4:10-cv-00294; 8/20/2015)
3. IRS Cannot Return Funds to Taxpayer Without Timely Request
In e-mailed advice, the IRS determined that it cannot return funds to a taxpayer who did
not request the return of those funds within nine months of the date of a levy.
(ECC 201534008; 8/21/2015)
4. Gift Tax Exception Applies to LLC; Donor's Return Descriptions Weak
The assessment statute of limitations exception in tax code Section 6501(c)(9) applies to
a gift tax return filed by a limited partnership because the company failed to adequately
disclose the donor's transfer of interests in two partnerships, the IRS says. The IRS Office
of Chief Counsel, in a field attorney advice memorandum, says the return filed by the
donating limited liability partnership failed to sufficiently identify one of the partnerships,
and it also failed to adequately describe the method used to determine the fair market
value of both partnership interests involved.
(FAA 20152201F; 8/24/2015)
5. IRS Releases Equity-Based Compensation Audit Techniques Guide
The IRS has released an audit techniques guide for examining cases involving equitybased compensation, which includes any compensation paid to an employee, director, or
independent contractor that is based on the value of specified stock.
(8/22/2015)
6. Business Owner Allowed Some Deductions, Not Liable for Penalty
The Tax Court, in a summary opinion, held that an automobile repair shop owner is
entitled to some depreciation, repair, utility, and vehicle expense deductions beyond those
allowed by the IRS; the court declined to hold him liable for an accuracy-related penalty,
finding that he reasonably attempted to comply with the tax laws.
(Ronald G. Ezzell Jr.; T.C. Summ. Op. 2015-52; 8/25/2015)
1
7. Tax Court Holds Foreign Earned Income Exclusion Reg Is Valid
The Tax Court, upholding the validity of a regulation, held that an individual wasn't entitled
to a foreign earned income exclusion because she failed to make a valid election under
reg. section 1.911-7(a)(2), finding that the Treasury secretary was authorized to
promulgate the regulation and that it is a valid implementation of the statute.
(Nancy McDonald; T.C. Memo. 2015-169; 8/25/2015)
8. IRS Guidance Prorates W-2 Wages for Sec. 199 Deduction
Guidance aims at clarifying manufacturers' uncertainty about allocating Form W-2 wages
for purposes of the tax code Section 199 domestic production deduction.
W-2 wages paid during a calendar year to employees of an acquired or disposed-of
business are prorated, allocated between each business based on the time each
company employed them, according to final, temporary rules. The rules say wages paid
during a short taxable year that doesn't include Dec. 31 are treated as W-2 wages for that
short taxable year.
The final regulations also cover such related issues as determining domestic production
gross receipts and allocating cost of goods sold.
Contract manufacturers hired to perform qualifying activities to produce a good can take a
domestic production deduction.
The proposed regulations address a long-standing debate between principals and
contract manufacturers about which party can take the domestic production deduction
under tax code Section 199 based on who has the benefits and burden of owning the
good that is being produced.
(REG-136459-09 and T.D. 9731; 8/27/2015)
9. Tax Treatment of Police, Firefighter Uniforms
The IRS Federal, State & Local Governments division has provided guidance on the tax
treatment of casual items of clothing issued as uniforms to police officers and firefighters.
(6/15/2015)
10. Proposed Regs on Bona Fide Residency in U.S. Territories
The IRS has issued proposed regulations that would amend the rules for determining
whether an individual is a bona fide resident of a U.S. territory.
(REG-109813-11; 8/27/2015)
11. Proposed Regs on Reportable Transaction Penalty
The IRS has issued proposed regulations on the amount of the penalty under section
6707A for failure to include on a return or statement any information required to be
disclosed under section 6011 regarding a reportable transaction.
(REG-103033-11; 8/28/2015)
2