In the case of Schumann v. Commissioner, TC Memo 2014-138, http://www.ustaxcourt.gov/InOpHistoric/SchumannMemo.Kerrigan.TCM.WPD.pdf, a number of issues related to passive activities and rental real estate were before the court. However an interesting issue arose as a taxpayer discovered that positions taken in one legal proceeding can come back to haunt the taxpayer in another.
If a taxpayer sells a rental property formerly used as the taxpayer’s principal residence that has been used as a rental, there is the possibility that §121 may be available to be used to exclude gain from the sale of the rental. But if the rental activity has unused passive losses, does invoking §121’s gain exclusion prevent the ability to release the excess losses under IRC §469(g)(1)’s special rule for dispositions?
Generally, IRC §121 allows for exclusion of up to $250,000 of gain ($500,000 for a married couple filing a joint return) from the sale of property that was owned and used by the taxpayers as their principal residence for two of the five years immediately before the sale.
Reasonable reliance on a tax professional can serve to get taxpayers out of the accuracy related penalty of IRC §6662. In the case of English v. Commissioner, TC Summary Opinion 2014-66, http://www.ustaxcourt.gov/InOpHistoric/EnglishSummary.Gerber.SUM.WPD.pdf, the taxpayers were able to use what turned out be erroneous advice to escape the penalty (albeit, not the tax) on an assessment.
Cheryl English had been receiving disability payments from Hartford Insurance after she became disabled in 2007 and could no longer work. The policy provided that her benefits would be reduced if she qualified for Social Security disability benefits. While she applied for such benefits in 2007, she did not receive any in 2007, 2008 or 2009.
In Chief Counsel Advice 201427016 (http://www.irs.gov/pub/irs-wd/201427016.pdf) the IRS addressed the question of whether there’s an impact on whether a taxpayer may qualify as a real estate professional depending on whether or not the taxpayer makes an election to combine rental properties under Reg. §1.469‑9(g).
The IRS unveiled a new voluntary Annual Filing Season Program in response to the Service’s loss in the case of Loving v. IRS, 742 F.3d 1013,113 AFTR 2d 2014-867, (D.C. Cir. 2014) in its attempt to provide a mandatory preparer licensing program. The details of the new program are found in Revenue Procedure 2014-42, http://www.irs.gov/pub/irs-drop/rp-14-42.pdf.
The program is designed for preparers who not attorneys, CPAs or enrolled agents—what are referred to as “unenrolled preparers” generally. The ruling revokes, effective for returns and claims for refunds signed after December 15, 2015, Revenue Procedure 81-38.
The United States Supreme Court, resolving a split among the Circuit Courts of Appeal, has outlined the standard a taxpayer must meet in order to challenge an IRS summons in the case of United States v. Clarke, (113 AFTR 2d ¶2014-922, http://www.supremecourt.gov/opinions/13pdf/13-301_q9m4.pdf).
The Eleventh Circuit, which issued the decision in the case that was brought before the Supreme Court, had taken the position that a single allegation of improper purpose was sufficient to allow the taxpayers to question the IRS regarding the reasons for issuing the summons. As the Supreme Court pointed out, no other Circuit has applied such a low hurdle to opening up an inquiry into the IRS’s motives.
In Chief Counsel Advice 201425011 (http://www.irs.gov/pub/irs-wd/1425011.pdf) the IRS considers the impact of the filing of a partnership return without a signature on the validity of the return and the ultimate impact on the statute of limitation on assessments.
The matter that led to this memorandum was an LLC that had a signature of unknown origin. Someone signed the return as “Foreign Entity” but the individual who generally acted for the foreign entity indicated that he had not signed nor filed the return, and that someone from the tax preparer’s office must have done so.