Federal Tax News – March

By Team HRH | March 30, 2018

The Offshore Voluntary Disclosure Program (OVDP) is ending. The IRS announced that the OVDP will no longer be available starting September 28, 2018. The program is a form of tax amnesty that allows U.S. taxpayers with unreported foreign accounts to avoid criminal charges and pay reduced civil penalties by making voluntary disclosures to the IRS. The IRS noted that, by alerting taxpayers to the closure now, it intends to provide U.S. taxpayers with undisclosed foreign financial assets time to avail themselves of the OVDP before the program closes. Read the entire announcement here: www.irs.gov

The IRS’s Large Business and International Division has added five new audit targets. The new issues under scrutiny are 1) improperly deducting costs that facilitate a tax-free corporate distribution under Section 355; 2) partners’ not paying the Self-Employment Contributions Act tax; 3) partners who stop filing tax returns; 4) not properly reporting the sale of partnership interests; and 5) incorrectly recognizing the gain or loss when taking the partial disposition election for buildings. See the announcement at www.irs.gov

No alimony deduction is allowed for marital home expenses paid by husband. The U.S. Court Appeals for the 7th Circuit, affirming a decision by the U.S. Tax Court, has rejected a husband’s argument that half of the amounts that he paid to keep up the marital residence, between the time the couple signed a marriage dissolution agreement and the time the house was sold, were deductible as alimony. The court agreed with the IRS that the amount in question wasn’t alimony because it failed the “must end at the death of the payee spouse” test. (Hexum, CA 7 2/22/2018)

News from the IRS about the new carried interest rule. The new rule can’t be avoided by having an S corporation hold the interest. Carried interests are ownership interests in a partnership that share in the partnership’s net profits, and are often issued to investment managers relating to their services. The interests often result in the holder receiving capital gains that are taxed at a lower rate, rather than as ordinary income. The IRS announced that, under the Tax Cuts and Jobs Act, S corporations are subject to the extended 3-year holding period for applicable partnership interests. (Notice 2018-18)

The IRS can piece together a taxpayer’s income and deductible expenses if it suspects the person didn’t correctly report them. That’s what happened in one case when the tax agency performed a “bank deposits reconstruction” of a married couple’s income. The couple questioned the validity of the reconstruction but a federal appeals court ruled that it was properly handled because the taxpayers didn’t keep adequate records or offer any evidence to rebut the IRS’s calculations. (Singh, CA 9, 121 AFTR 2d 2018-887)

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