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2022 Individual Planning and Due
Diligence
2022 Individual Planning and Due Diligence

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2022 Individual
Planning and
Due Diligence
Professor Annette Nellen, CPA,

CGMA, Esq.
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Diligence
Annette Nellen, CPA, CGMA, Esq., is a professor in and director of San José State University's
graduate tax program (MST), teaching courses in tax research, accounting methods, property
transactions, advanced individual taxation, employment tax, ethics, and tax policy.
Annette serves on the AICPA Tax Practice and Procedure Committee and chairs the AICPA
Virtual Currency Tax Task Force. She formerly served on the AICPA Tax Executive Committee,
including 2 ½ years as chair. She is a past member of the AICPA Tax Reform Task Force and
Individual Taxation Technical Resource Panel. She was the lead author of the AICPA tax policy
concept statement #1, Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax
Proposals (2001, updated 2017), still in use today. Annette serves on the Executive Committee of
the Tax Section of the California Lawyers Association (CLA). Annette is the recipient of the 2013
Arthur J. Dixon Memorial Award given by the Tax Division of the AICPA, the highest award given
by the accounting profession in the area of taxation. In 2019, Annette was the recipient of the Annette Nellen, CPA, Esq.
CLA’s Benjamin F. Miller Award for outstanding achievement and contribution in the field of
state and local taxation law.
Annette is a regular contributor to State Tax Notes, authoring a column called Moving Forward?
She is the author of Bloomberg BNA Tax Portfolio #533, Amortization of Intangibles. She is co-
author and co-editor of four tax textbooks from Cengage, and a contributor to CCH’s Top
Federal Tax Issues text. Annette has testified before the House Ways & Means Committee,
Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform
commissions and committees on various aspects of federal and state tax reform. She maintains
the 21st Century Taxation website and blog (www.21stcenturytaxation.com), as well as several
websites on tax reform, state tax nexus, and virtual currency taxation. Prior to joining SJSU in
1990, Annette was with Ernst & Young and the IRS.
Learning • Identify key tax developments from Congress, the

IRS, and the courts that affect individuals
Objectives
• Identify due diligence and planning ideas from
recent federal tax developments
• Recognize changes to 2022 individual tax forms
Disclaimer
This information is provided for educational purposes. Many of the topics
covered could easily be individual lessons on their own. This update serves
as awareness of key developments and the basics of each. It is not
intended to answer specific tax questions or provide details of the
underlying law noted in each update. Application of any item requires the
user to consult the primary authority referenced and related rules and
consider the particular facts at hand.
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Diligence
Topics Covered • How the Inflation Reduction Act affects compliance

and planning for individuals
Include
• Key rulings pertaining to income and property
transactions, deductions, losses, and credits
• What's new regarding cryptocurrency and digital
asset planning and compliance
• New IRS practice and procedures relevant to
individuals
• Changes to individual tax forms for 2022
• Expiring provisions
• Legislative proposals
• Planning and due diligence reminders
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Agenda 1. Inflation Reduction Act of 2022

2. Significant cases and IRS rulings
3. Cryptocurrency & digital assets
4. IRS practice & procedure highlights
5. Changes for 2022 IRS tax forms
6. Expired and expiring provisions
7. Legislative proposals to watch for in
balance of 2022
8. Planning and due diligence – beyond above
– including from prior year legislative
changes
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Diligence
• Where does it fit in the law?

Dealing with new • Statutory change – What Subtitle, Chapter, Subchapter, etc.
tax rules from •

• What area of the tax law(s)? (for example, property rules, procedural)
Is it a new rule, modification to existing one (if yes, track changes can
any branch of •
help show effects)
How does this update work with existing rules?
gov’t • Example: How do the changes to §6045 on broker and basis reporting by
the Infrastructure Investment and Jobs Act tie to the virtual currency FAQs
on basis reporting?
• Example: New or higher tax rate – how does it work with estimated tax
rules, penalties and form of payment (e-pay, e-file)
• Does the update require changes to tax forms?
• Does the update affect recordkeeping?
• Will the update require changes in planning strategies?
• What are the effective dates?
• What other federal taxes are affected?
• What, if anything, was released subsequent to this particular
development – by IRS or legislatures?
• What is the state tax treatment? Any local tax relevance?
1. Inflation
Reduction Act of
2022
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Diligence
Official name:
P.L. 117-169 •
An Act to provide for reconciliation pursuant to title II of S.
(8/16/22) (H.R. Con. Res. 14.
• Unofficial name: Inflation Reduction Act of 2022
5376), • Votes:
Inflation •
•
Senate on 8/7/22 51 – 50
House on 8/12/22 220 – 207
Reduction Act of • Signed: 8/16/22
• Relevance to inflation:
2022 • Lowering of drug prices
• Cap of $2,000/year if on Medicare
• Possible lowering of energy prices and increasing supply
• Continuation of access to PTC for more households through 2025
• New tax credits
• Some deficit reduction – CBO estimates about $300 billion over
10 years
• https://www.congress.gov/bill/117th-congress/house-bill/5376
Summary from
Senate
Democrats
(8/11/22)
https://www.democrats.senate.gov/imo/media/doc/i + reinstatement
nflation_reduction_act_one_page_summary.pdf of Superfund
taxes = $11.7B
*https://www.cbo.gov/system/files/2022-08/58390-
IRS.pdf
CBO 8/25/22 estimates revenue increase from IRS funding of $180.4 billion
for 2022-2031 with small amount from taxpayers with income under
$400,000*
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Diligence
New $80 Billion Funding for IRS Operations over 10

years
SEC. 10301. ENHANCEMENT OF INTERNAL REVENUE SERVICE RESOURCES
Amount
(generally available thru 9/30/31;
some must be used before that date)
Funding for …
Taxpayer services $3,181,500,000
Enforcement $45,637,400,000
Operations support $25,326,400,000
Business systems modernization $4,750,700,000
Task force to design IRS-run free “direct file” $15,000,000
TIGTA $403,000,000
Office of Tax Policy in Treasury $104,533,803
U.S. Tax Court $153,000,000
Treasury departmental offices $50,000,000
Total $79,621,533,803
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https://www.democrats.senate.gov/imo/media/doc/ICYMI-
Inflation Bipartisan%20Group%20of%20Former%20IRS%20Commissioners%20Call%20for%20Passage%2
0of%20Inflation%20Reduction%20Act.pdf
Reduction Act
Supported by 3
Former IRS
Commissioners
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Diligence
“Specifically, I direct that any additional resources—including any

Treasury •
new personnel or auditors that are hired—shall not be used to
increase the share of small business or households below the
Secretary Yellen $400,000 threshold that are audited relative to historical levels. This
means that, contrary to the misinformation from opponents of this
Sends Letter to legislation, small business or households earning $400,000 per year
or less will not see an increase in the chances that they are audited.
IRS Comm’r Instead, enforcement resources will focus on high-end
noncompliance.” …
Rettig, 8/10/22 – • “Crucially, these resources will support a much-needed upgrade of
Excerpt technology that is decades out-of-date, and an investment in
taxpayer service so that the IRS is finally able to communicate with
taxpayers in an efficient, timely manner.” …
• “This historic investment in our tax system will accomplish two
critical objectives. It will raise substantial revenue to address the
deficit; and it will create a fairer system, where those at the top who
do not today comply with their tax obligations find it far less easy to
do so, and where all taxpayers receive the service from the IRS that
they deserve, and that your dedicated workforce is eager to deliver.
The importance of the work ahead cannot be overstated. “
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https://www.irs.gov/pub/irs-pdf/p55b.pdf
2021 IRS Data
Book
“For TY 2020 individual income tax returns processed

during FY 2021, IRS sent more than 12.3 million notices to
taxpayers for more than 12.9 million math errors identified
on their returns. For TY 2019 and prior, 730,119 notices were
sent for 1.0 million math errors identified (Table 23).”
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Diligence
IRS Personnel • About 52,000 of 83,000 employees are eligible to

retire in next 6 years
Attrition Data + • https://www.irs.gov/pub/irs-pdf/p3744.pdf
Hiring Objective
from FY2022-2026
Strategic Plan
(released before
8/16/22)
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GAO, Tax • Individuals with income below $25K or above

$500K more likely to be audited.
Compliance: • Audit rates dropped due to staffing shortages and
Trends of IRS add’l time to examine more complex situations.
Audit Rates and “IRS officials

explained that EITC
Results for audits require
relatively few
Individual resources and
prevent ineligible
Taxpayers by taxpayers from
receiving the EITC.”
Income, GAO-22-
104960 (5/17/22)
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Diligence
GAO – Continuing
Drop in
Examinations
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“Before the IRS moves forward in improving its overall

NTA •
operations, however, it is imperative that it fulfill its core filing
Recommendation season mission by eliminating the backlog of unprocessed
original and amended paper-filed tax returns, pay all pending
s to IRS for $80 refunds, and work through its backlog of overaged
correspondence.” Recommendations previously offered:
Billion – Part 1 1. Hire or re-assign employees to process backlog of paper-filed tax
returns and correspondence.
(8/14/22) 2. Hire enough employees to answer 85% of taxpayer phone calls, and
institute “customer callback” technology on all toll-free phone lines.
3. Improve service for tax professionals, who often call with complex issues
or cases and cannot obtain timely and accurate assistance.
4. Continue to suspend automated collection notices until backlog is
eliminated.
5. Hire enough employees to fully staff Taxpayer Assistance Centers (TACs)
and extend walk-in capabilities.
• https://www.taxpayeradvocate.irs.gov/news/nta-blog-the-nta-reimagines-
the-irs-with-a-dramatically-improved-taxpayer-experience-part-one/
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Diligence
8/15/22 - Suggests IRS include following in their plan due in Feb

NTA 2023:
Recommendation 1. Hire and train more human resources employees to manage hiring all IRS
employees.
s to IRS for $80

2. Ensure all IRS employees – particularly customer-facing employees – are well-
trained to do their jobs.
3. Create robust and accessible online accounts with functionality rivaling the best
Billion – Part 2 financial institutions and through which taxpayers and practitioners can access,
download, and upload all relevant information
4. Temporarily expand uses of the Documentation Upload Tool (DUT) or similar
technology
5. Improve the readability of tax transcripts
6. Enable all taxpayers to e-file their tax returns
7. Automate the paper filing process and implement scanning technology to machine
read paper-filed tax returns and correspondence
8. Digitalize all paper, upload the data, and implement an integrated case
management system so all taxpayer information is accessible in a single database
9. Overhaul the IRS.gov website to make it more user-friendly
10. Continue to develop and improve voicebots and chatbots
11. Improve transparency
https://www.taxpayeradvocate.irs.gov/n 12. Issue clear notices and IRS guidance
ews/nta-blog-the-nta-reimagines-the- 13. Increase Taxpayer Advocate Service funding
irs-with-a-dramatically-improved-
taxpayer-experience-part-two/
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Health Savings • Included in Subtitle B of IRA 2022 —Prescription

Drug Pricing Reform
Account Change
• SEC. 11408. SAFE HARBOR FOR ABSENCE OF
for Insulin DEDUCTIBLE FOR INSULIN
Deductible • Adds new §223(c)(2)(G) related to high deductible
plans, effective for plan years beginning after
[SEC. 11408] 12/31/22.
• See text of (G) on next slide ----→
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Diligence
HSA Change for

Insulin
Deductible -
continued
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Extension of • §36B(b)(3)(A)(iii) and §36B(c)(1)(E)

• Continuation of ARPA (P.L. 117-58; 3/11/21) change
Broader for temporary percentages and table using 8.5% as
Availability of premium percentage if household income is 400%
or more of federal poverty line.
Premium Tax • ARPA rule was for 2021 and 2022.
Credit • Now in law through 2025.
[SEC. 12001] • Maximum for individual to contribute towards
premiums is 8.5% of household income.
• Reminders:
• PTC = cost of second lowest cost Silver plan less
amount insured deemed able to contribute based on
household income.
• Must still meet other PTC requirements including
employer does not offer affordable coverage and
purchase policy on the exchange.
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Diligence
Energy Security
Provisions – List
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Name changed from Nonbusiness Energy Property to Energy

Extension, •
Efficient Home Improvement Credit
increase, and • 30% of amount paid for qualified energy efficiency
improvements installed, residential energy property
modifications of expenditures and home energy audits.
nonbusiness • Limit of $1,200 credit per year, BUT add’l limits specified for
residential energy property, windows, doors, heat pump, heat
energy property pump water heater, biomass stoves, boilers and home energy
audits
credit (sunset • Lifetime limit of prior version ends.
12/31/32) - §25C • Must be produced by “qualified manufacturer” and have
[SEC. 13301] “qualified product identification number”
• Home energy audit (§25C(e)) – inspection and written report
for principal residence to ID most significant and cost-
effective energy efficiency improvements and conducted and
prepared by home energy auditor meeting specified
requirements
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Diligence
§25C, Energy • Changes include allowing credit for second home

(not only principal residence).
Efficient Home • Generally effective for property placed in service
Improvement after 12/31/22
Credit – cont’d • Extension to 12/31/32 (rather than 12/31/21) effective
for property placed in service after 12/31/21
• So, retroactively renewed for 2022.
• ID # effective for property placed in service after
12/31/24.
• Track changes version & effective date info:
• https://www.sjsu.edu/people/annette.nellen/25
C_AmendedBy_IRA_Aug2022.pdf
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• Name changed from Residential Energy Efficient

Extension and Property to Residential Clean Energy Credit
modification of • Removes qualified biomass fuel property and
the residential replaces with qualified battery storage technology
• Must have capacity no less than 3 kilowatt hours
energy efficient
• Generally effective for expenditures made after
property credit 12/31/21 except battery storage change effective for
(sunset 12/31/34) expenditures after 12/31/22.
• Percentages and phasedown of credit modified.
- §25D [SEC.
13302]
• Track changes version & effective date info:
• https://www.sjsu.edu/people/annette.nellen/25
D_AmendedBy_IRA_Aug2022.pdf
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Diligence
Greatly revised IRC 30D
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• Name changed from New Qualified Plug-In Electric Drive

Clean vehicle Motor Vehicles to Clean Vehicle Credit
credit (sunset • 2 possible $3,750 credits for total of $7,500
1. Critical minerals requirement (§30D(e)(1)(A))
12/31/32) - §30D 2. Battery components (§30D(e)(2)(A))
IRS required to get guidance out on these items by 12/31/22.
amended and • Final assembly must occur in North America – effective after
8/16/22
extended [SEC. • IRS and Treasury guidance on next slide ---→
13401] • Must be made by a “qualified manufacturer.”

• Must report the VIN on the return.
• New §30D(g) on transfer of credit – taxpayer can elect to
transfer to dealer
Requires a % of the critical minerals or • Effective for vehicles placed in service after 12/31/23. See §30D(g) – lots
components increasingly come from of details!
US or country US has free trade • Track changes version with effective date info + info from
agreement with.
Treasury, IRS and Energy Dept.:
https://www.sjsu.edu/people/annette.nellen/30D_TrackChanges_25E_45W_IRA2022.pdf
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Diligence
§30D, Clean • Treasury and IRS guidance released 8/16/22:

• Transition rule - If after 12/31/21 and before 8/16/22,
Vehicle Credit – taxpayer purchased, or entered into written binding
Final Assembly in contract to purchase, a new qualified plugin electric
drive motor vehicles (per §30D(d)(1) as in effect
US – effective before IRA changes, and placed that vehicle in service
on or after 8/16/22, taxpayer may elect (per IRS
after 8/16/22 guidance) to treat such vehicle as having been placed
in service on the day before enactment date.
• Links below include how to know where car was
assembled.
• https://home.treasury.gov/system/files/136/EV-Tax-
Credit-FAQs.pdf
• https://www.irs.gov/businesses/plug-in-electric-
vehicle-credit-irc-30-and-irc-30d
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• §30D(f)(11) Manufacturer’s Suggested Retail Price

§30D, Clean Limitation
Vehicle Credit – • To get credit, MSRP must not exceed:
Vehicle Cost and • Vans, SUVs and pickup trucks - $80,000
• Sedans, others - $55,000
MAGI Limitations • Observation: No definition of MSRP provided.
• §30D(f)(10) MAGI limitations
• MAGI = AGI + §911, §931 and §933 exclusion amounts
• No credit if lesser of MAGI in current or preceding tax
year exceeds these thresholds:
• MFJ $300,000
• HH $225,000
• Single or MFS $150,000
• Observation: These are cliffs rather than phaseouts,
but helpful to be able to use MAGI of preceding year.
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Diligence
§30D – “Foreign • §30D(d)(7) – part of definition - “new clean vehicle”

excludes any vehicle:
Entity of Concern” • If placed in service after 2024 and “any of the
Limitation – part applicable critical minerals contained in the battery
of such vehicle (as described in subsection (e)(1)(A))
of definition of were extracted, processed, or recycled by a foreign
entity of concern (as defined in section 40207(a)(5) of
new clean vehicle the Infrastructure Investment and Jobs Act (42 U.S.C.
18741(a)(5))”
• If placed in service after 2023 and “any of the
components contained in the battery of such vehicle
(as described in subsection (e)(2)(A)) were
manufactured or assembled by a foreign entity of
concern (as so defined).”
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What can/should tax advisers tell clients?

§30D, Clean •
• Former plug-in electric drive credit has been greatly
Vehicle Credit modified.
• Some cars that no longer qualified due to 200,000 sales
Reality Check cap may qualify again after 2022.
• MAGI limits using either preceding or current year info.
• The MSRP limits
• Lots of the qualifications are beyond tax (!) including:
• Was car assembled in North America?
• Is either or both of the critical minerals and battery
component parts of the credit met?
• Is it a qualified manufacturer?
• After 2023 for battery and after 2024 for the critical
minerals, were they obtained by a foreign entity of
concern?
• IF won’t meet MAGI levels and want credit – buy a qualified
vehicle by 12/31/22 assembled in North America!
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Diligence
Credit for • “Qualified buyer” can get credit equal to lesser of:
• $4,000 or
previously-owned • 30% of sales price
clean vehicles • Model year must be at least 2 years earlier than
(sunset 12/31/32) year acquired & meet certain requirements at §30D.
• Price can’t exceed $25,000
- §25E added
• VIN reported on return
[SEC. 13402] • Need not be assembled in North America
• Must acquire from dealer defined at §30D(g)(8)
(licensed to engage in sale of vehicles)
• Must be the first sale after 12/31/22 to qualified
buyer (so can’t be used on continued sales of the
used vehicle).
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Credit for • §25E(b) MAGI limitations

• MAGI = AGI + §911, §931 and §933 exclusion amounts
previously-owned • No credit if MAGI in current or preceding tax year
clean vehicles exceeds these thresholds:
MFJ $150,000
(sunset 12/31/32) •
• HH $112,500
- §25E added • Single or MFS $75,000
[SEC. 13402] • Observation: These are cliffs rather than phaseouts,

but helpful to be able to use MAGI of preceding year.
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Diligence
• §25E(c)(3) QUALIFIED BUYER =

Credit for
• (A) individual,
previously-owned • (B) purchases such vehicle for use and not for resale,
clean vehicles - IRC • (C) with respect to whom no deduction is allowable with
respect to another taxpayer under section 151, and
§25E - more • (D) who has not been allowed a credit under this section
for any sale during 3-year period ending on date of the
sale of such vehicle.
• Credit transfer rules similar to §30D(g) apply.

• Applies for 2023 through 2032.
• Text near end of this document:

• https://www.sjsu.edu/people/annette.nellen/30D_TrackCh
anges_25E_45W_IRA2022.pdf
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White House Info • Questions

households might
for Families for have such as
Energy Tax • I want to install
rooftop solar on my
Credits home
• I want to make my
home and
appliances more
energy efficient
• I need to replace
my furnace or air http://www.cleanenergy.gov
conditioner
• I want to buy an
electric vehicle
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Diligence
Extension of TCJA • SEC. 13903(b) extends excess business loss limitation for
noncorporate taxpayers at §461(l), added by TCJA for 2 more years.
Provision at Thus, remains in the tax law through 2028.

• Observations: CARES Act (P.L. 116-136, 3/27/20) changed TCJA
§461(l) Limitation effective date of §461(l) from tax years beginning after 12/31/17 to
tax years beginning after 12/31/20 (3-year postponement of
on Excess effective date). American Rescue Plan Act (P.L. 117-58, 3/11/21)
added one more year to TCJA expiration date making the §461(l)
Business Losses loss limitation in effect through 2026. Inflation Reduction Act now
makes the §461(l) loss limitation effective through 2028.
of Noncorporate • Observations: So, returns to being an temporary provision for 8
Taxpayers [SEC. years.

• Build Back Better (BBB) Act passed by the House on 11/19/21 would
13903] have made the §461(l) excess loss limitation for noncorporate
taxpayers a permanent provision and modified the carryforward
treatment (SEC. 13903 of BBB). Currently, the excess loss carries
forward as an NOL. BBB would have make the loss subject to the
§461(l) limitation in the next year, with a special rule for unused
business losses when a trust or estate terminated.
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• PTC if no employer-provided affordable coverage and

Opportunities purchase insurance on exchange
Under Inflation • Extended through 2025.
Reduction Act • Also new regs (covered later) further help if
employer-provided coverage to employee is
Include … affordable but coverage for family is not.
• Energy credits for individuals

• Watch all the details (tax and non-tax) to be sure
client qualifies.
• Likely need info from manufacturers and sellers to
be sure.
• “Qualified” and special rules show up a lot in the
revised credits.
• Monetizing energy credits – possible investment
opportunities
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Diligence
• Numerous reg projects for IRS!

What’s Next for • Need to get guidance out on some new elements of §30D,
Clean Vehicle Credit by 12/31/22!
Inflation • “Secretary” appears 576 times in the text of P.L. 117-169!
Reduction Act • But appears multiple times in some provisions.
Post-Enactment? • Likely new forms for some energy credits, corporate minimum
tax, stock buyback tax.
• Revised forms for PTC, research credit (Forms 6765 & 8974), and
a few others.
• IRS detailed plans for how it will use $80 billion over 10 years
(within broad categories laid out in Act)
• Due to Secretary Yellen by mid-February 2023.
• Businesses figure out energy tax credits and grants and how to
monetize them.
• Might present investment opportunities or credit purchase opps for higher
income individuals.
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IRS Seeks • Comments sought by 11/4/22

• Each notice provides overview to the credits
Comments on • Notice 2022-46 requests comments on credits for clean
New Energy vehicles.
• Notice 2022-47 requests comments on energy security tax
Credits and credits for manufacturing.
Notice 2022-48 requests comments on incentive provisions
Related Items – •
for improving the energy efficiency of residential and
Notices 2022-46 commercial buildings.
• Notice 2022-49 requests comments on certain energy
to 2022-51 generation incentives.
Notice 2022-50 requests comments on elective payment of
(10/5/22) •
applicable credits and transfer of certain credits.
• Notice 2022-51 requests comments on prevailing wage,
apprenticeship, domestic content, and energy communities
requirements.
https://www.irs.gov/newsroom/irs-asks-for-comments-on-upcoming-energy-guidance
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Diligence
2. Significant
Cases and IRS
Rulings
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• Box 1 on 1099-K doesn’t necessarily mean that much gross payments are
Crowdsourcing – taxable
• General rule – all income rec’d is taxable unless exclusion applies, such as
Information Info gift
• Gift? “If crowdfunding contributions are made as a result of the
from IRS – FS- contributors' detached and disinterested generosity, and without the
contributors receiving or expecting to receive anything in return, the
2022-20 (March amounts may be gifts and therefore may not be includible in the
gross income of those for whom the campaign was organized.
Contributions to crowdfunding campaigns are not necessarily a result
2022) – A few of detached and disinterested generosity, and therefore may not be
gifts. Additionally, contributions to crowdfunding campaigns by an
interesting items employer to, or for the benefit of, an employee are generally
includible in the employee's gross income.”
• “If a crowdfunding organizer solicits contributions on behalf of others,
distributions of the money raised to the organizer may not be includible
in the organizer's gross income if the organizer further distributes the
https://www.irs.gov/newsroom/money-
money raised to those for whom the crowdfunding campaign was
received-through-crowdfunding-may-
be-taxable-taxpayers-should- organized.”
understand-their-obligations-and-the- • “If distributions reported on a Form 1099-K are not reported on tax return of
benefits-of-good-recordkeeping recipient of the form, IRS may contact recipient for more information. The
recipient will have the opportunity to explain why the crowdfunding
https://www.irs.gov/newsroom/some- distributions were not reported on the recipient's tax return.”
things-to-know-about-crowdfunding-
and-taxes
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Diligence
Crowdsourcing - • Queries: Why no examples or binding guidance?

Why no easy way to show on return how taxpayer
more reconciled 1099-K that doesn’t represent taxable
gross receipts?
• Info Letter 2016-36 – general info for taxpayer

crowdfunding to purchase a company where
contributors receive interest in company.
• https://www.irs.gov/pub/irs-wd/16-0036.pdf
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• LaMalfa and others requested guidance 1/21/22 and

Congressman 6/8/22
LaMalfa Receives • “awards attributed to physical injury and emotional
Info from IRS on distress caused by physical injuries are exempt from
federal taxes [§104]. Additionally, the guidance states
Taxability of Fire settlement money used to reimburse or pay for
Victim Trust reasonable and necessary personal, family, living, or
funeral expenses that occurred due to a loss in a
Payments – federally declared disaster, are exempt from federal
taxes [§139]. The guidance also includes that expenses
6/28/22 used to fund repairing or replacing personal
residences and its contents are exempt from federal
taxability [not considered income; restores lost or
damaged capital; if gain, see §1033].”
• https://lamalfa.house.gov/media-center/press-releases/lamalfa-receives-taxability-guidance-on-fire-
victim-trust
• https://lamalfa.house.gov/sites/lamalfa.house.gov/files/wysiwyg_uploaded/6.28.2022%20IRS%20FVT%2
0response1_Redacted.pdf
44
44
Diligence
• 2016 IRS assessed $11K deficiency for unreported

Excludable retirement plan distributions and unsubstantiated
Disability Benefit business expenses.
• V served in Army for 22 years.
vs. Taxable
• Rec’d monthly disability payments from VA upon
Retirement discharge in 2002. IRS agrees these payments are not
taxable.
Benefits –
• 2016 rec’d $24K retirement distributions from Army-
Valentine, TC based retirement plan reported on 1099-R
Memo 2022-42 • Did not file 2016 return; IRS prepared SFR
• 2/19/19 – IRS issued SNOD
(4/28/22)
• V hired accountant to prepare return
• Reported $3K of the $24K retirement distribution;
no explanation provided
• https://dawson.ustaxcourt.gov/case-detail/6724-19
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45
Possibilities:
Valentine – •
• 1) if qualifies as “combat-related injury” under §104(b)(2)(C) and
Analysis of (b)(3)
• n/a – info from VA refers to ““service-connected disability
whether any compensation” (emphasis added), without reference to
“combat”” + V provided no other evidence on this
retirement • 2) if meets “entitled to receive as disability compensation”
• V had 60% VA disability rating which increased to 90% in 2016
distribution is • n/a here per §104(a)(3) and (b)(2)(D) – may exclude
retirement distributions equal to what disability comp would
excluded under be BUT ONLY IF not currently receiving excludable disability
benefits from VA and V was receiving those benefits.
§104 • And no showing that any was for retroactive benefits
• “(“Section 104(b)(2) provides no independent basis for
exclusion. Instead, consistent with express legislative
Result: taxable! intent, it limits the classes of persons who otherwise
might be eligible for the section 104(a)(4) exclusion”).”
46
46
Diligence
Valentine – • “A retired service member may exclude a portion of

her retirement distributions in an amount equal to
Analysis of the benefit that she “would be entitled to receive as
whether any disability compensation from” the VA, §104(b)(4)
(emphasis added), but only if she is not currently
retirement receiving excludable disability benefits from the VA,
distribution is as Ms. Valentine was receiving. The legislative
history supports this interpretation of section
excluded under 104(b)(4).”
§104 • Tax Reform Act of 1976 (P.L. 94-455).
• fyi – see pages 127 – 131 of JCT Bluebook
• https://www.jct.gov/publications/1976/jcs-33-76/
• Observations: Review 1099-R and military payments

carefully and get as much background info as
possible to determine tax effect.
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47
Other §104 •
•
Caldwell, TC Memo 2022-51 (5/18/22) – disability payments taxable
Sylvester, CV 121-012 (SD GA, 8/8/22) – S has burden to prove disability
Rulings in 2022 - benefits not taxable; if not tied to personal injury – taxable
• Dern, TC Memo 2022-90 (8/30/22) – work-related legal settlement taxable; “in
Several kieu of what were the damages awarded”? Settlement did not mention
physical injuries. Taxable - D’s physical injury that led to lawsuit is not a
“direct causal link” between D’s illness and settlement payment
• Settlement of $550K sent to attorney who kept his fee and sent
balance of $327K and 1099-MISC for that amount to client (wrong
amount!)
• Key points:
• Review documentation explaining purpose of receiving funds.
• Review §104 carefully.
• 1099-MISC rec’d by client might be wrong (as in Dern case and others)
• If client consults with you in advance, can help, including asking for higher
recovery to also cover taxes due.
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48
Diligence
Student Loan • Loan forgiveness of:

• $20,000 for Pell Grant recipients
Relief – August
• $10,000 for others (if have the right loan type)
2022 Actions of • IF income under $125,000 ($250,000 if MFJ or HH)
Administration • Observation: No details on how to measure
income or for what year.
• Have until 12/31/23 to apply.
• Might be taxable in some states (but still a good deal!).
• White House Fact Sheet of 8/24/22
• https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-
announces-student-loan-relief-for-borrowers-who-need-it-most/
• Background Press Call by Senior Administration Officials on Student Loan Relief, 8/24/22
• https://www.whitehouse.gov/briefing-room/press-briefings/2022/08/24/background-press-call-by-senior-
administration-officials-on-student-loan-relief/
• Explanation from Federal Student Aid office in Dept. of Education
• Sign up for news at https://www.ed.gov/subscriptions
• https://studentaid.gov/debt-relief-announcement/
• Some details at https://studentaid.gov/debt-relief-announcement/one-time-cancellation
49
49
Student Loan • U.S. Department of Education, 8/24/22

• “final extension of the pause” on principal and
Relief – More info interest through 2022
• Reason – “To address the financial harms of the
pandemic by smoothing the transition back to
repayment and helping borrowers at highest risk
of delinquencies or default once payments
resume”
• https://www.ed.gov/news/press-releases/biden-harris-administration-announces-final-
student-loan-pause-extension-through-december-31-and-targeted-debt-cancellation-
smooth-transition-repayment
• Legal memo from DOE

• “Higher Education Relief Opportunities for Students
(“HEROES”) Act of 2003 grants the Secretary authority
that could be used to effectuate a program of targeted
loan cancellation directed at addressing the financial
harms of the COVID-19 pandemic.”
• https://www2.ed.gov/policy/gen/leg/foia/secretarys-legal-authority-for-debt-
cancellation.pdf
50
50
Diligence
Student Loan Relief – Lawsuits Filed Challenging Authority To Forgive

1. 9/27/22 - Lawsuit filed by Pell Grant recipient (Mr. Garrison) still paying off student loans, challenging
President Biden’s authority to forgive this debt.
• Works for Pacific Legal Foundation, 501(c)(3) org, which is apparently sponsoring this lawsuit
• Working there qualifies G for Congressionally authorized Public Service Loan Forgiveness program (PSLF)
• Expect will qualify for $20K forgiveness
• Cancellation will cause G to owe tax in Indiana so says loan cancellation will cause him to incur financial obligation he would not otherwise
have faced.
• Indiana excludes student loan debt forgiven via PSLF program, but not Biden’s forgiveness program.
• Argues – “debt cancellation is not justified by the HEROES Act because, among other reasons, the cancellation is neither “necessary,” nor is it
targeted at harms that are “a direct result of a . . .national emergency.”” + “mass cancellation is also hardly “necessary” to mitigate the
economic harms of the pandemic.”
• Prelim injunction denied (9/29/22) – no irreparable harm since can opt out of loan forgiveness
https://pacificlegal.org/wp-content/uploads/2022/09/2022-09-27-garrison-v-department-of-education-complaint-stamped.pdf
2. Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina v. Biden, Cardona and US Dept of Education
(ED MO, 9/29/22)
• Concerns include that majority of benefit goes to top 60% income earners, deficit concerns, doing via regulatory action.
https://ago.nebraska.gov/news/six-states-file-challenge-biden-administration%E2%80%99s-student-loan-cancellation-program
https://ago.nebraska.gov/sites/ago.nebraska.gov/files/doc/1.%20Complaint%20-%20Neb.%20v.%20Biden.pdf
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Taxation of • American Rescue Plan Act (P.L. 117-58, 3/11/21)

• Replaced special student loan discharge exclusion on account of death or disability
Student Loan with broader rule covering more student debt forgiveness
• Whether by the university or directly to borrower if insured or guaranteed by

Relief – U.S., state or eligible educational institution
Reminders of
• Including private education loan
• n/a if forgiveness is due to services provided by the student.
Changes to §108 • Effective for discharges of loans after 12/31/20 and before 1/1/26.
…. and §127 in • Observations:
• Notice 2022-01 (12/21/21) – lenders don’t need to issue 1099-C if discharge

recent years excluded per §108(f)(5).
• States where taxable won’t like this!
• See track changes of §108(f) at

https://www.sjsu.edu/people/annette.nellen/108f5_Student_Debt_Forgiveness_Exclusion_ARP2021.pdf
• CAA-21 extended §127 educational assistance exclusion of up to $5,250/year

to include principal and interest on employee’s qualified education loan;
through 2025.
52
52
Diligence
Tax considerations to ask about: Name, image and likeness

Tax
• •
Taxable income – federal and (NIL) – NCAA adopts interim
state/multistate policy allowing comp (6/30/21)
Considerations of • NIL likely also subject to self-
employment tax if rises to level of
NIL Income for
https://www.ncaa.org/about/resources/media-
a trade or business center/news/ncaa-adopts-interim-name-image-and-
likeness-policy
• If T or B, expenses allowed,
Student-Athletes including §199A deduction.
• What state is revenue taxed in?
https://www.ncaa.org/sports/2021/2/8/about-taking-
action.aspx
- NCAA v. Alston, • Where earned? Student’s

state of residence?
No. 20-512 (USSC, • Might be special sourcing

considerations depending on
6/21/21) the nature of the income.

• Student-athlete might also get
from university: increased
“scholarship” funds (for costs of
attendance) and “Alston money” (for
academic achievement capped at
$5,980) – some might fall under §117
as non-taxable scholarship, but
likely not all. Kiddie tax issue too.
53
53
2010 & 2011 - Dr. Vitaly Baturin, Russian national and physicist, holder
4th Circuit •
of J-1 exchange visitor visa, worked at Dept. of Energy facility in
Newport News, VA
Overturns Tax • Rec’d W-2s showing wages of $76,729 and $79,061, in 2010 and 2011,
Court Decision on •
respectively.
Filed 1040-NR reporting wages exempt per U.S. Russia Tax Treaty.
Tax Treaty • 2014 - IRS issued Notice of Deficiency for tax owed of $22,229 for 2010
& 2011.
Application – • Tax Court held for B – per Treaty, “wages may be eligible for
exemption so long as they are similar to a grant or allowance.” IRS
Baturin, No. 20- appealed.
Issue – classification of amounts paid to B
1648 (4th Cir., •
• Article 14 – wages taxable where earned
4/6/22) • Article 18 - recipient of a grant, allowance, or other similar
payments from a . . . scientific . . . organization, is exempt
• Article 3(2) – if term not defined, has common meaning in that
jurisdiction
https://www.ca4.uscourts.gov/opini
ons/201648.P.pdf • 6/3/22 – B’s petition for rehearing denied
54
54
Diligence
• §117 - “[a] fellowship grant generally means an amount

Baturin - paid or allowed to, or for the benefit of, an individual to
continued aid him in the pursuit of study or research.” Reg 1.117-3 –
grant excludes amounts paid for past, present or future
services rendered to payor.
• Bingler v. Johnson, 394 U.S. 741 (1969) – “draws a line
between work done as part of a “substantial quid pro
quo,” which is taxable as compensation, and “relatively
disinterested, ‘no-strings’ educational grants,” which are
tax-exempt.”
• Similar to treaty.
• Treaty preamble supporting scientific research n/a to
body. “[w]e may not read international treaties so
broadly as to create unintended benefits or to reach
parties not within the scope of a treaty’s language.”
55
55
“Tax Court should determine what Jefferson Lab [DoD] gained

Baturin – Remand •
from having Dr. Baturin on staff. … should consider, following
to Tax Court to questions: If not Dr. Baturin, would Jefferson Lab have brought
someone else to work on upgrading the detector? Did the
Consider … projects Dr. Baturin worked on pre- and/or post-date his
tenure at Jefferson Lab, or were they dependent on his
presence? Did Jefferson Lab retain the rights to the product of
Dr. Baturin’s research? How much discretion did Dr. Baturin
have to direct the day-to-day performance of his work? Cf.
Rev. Rul. 80-36, 1980 WL 129605, (outlining relevant
considerations to determine whether researchers’ income was
tax-exempt under U.S.-Japan Income Tax Convention). In short,
was there a “substantial quid pro quo” here?”
• “whether there is a “requirement of any substantial quid pro quo”
that distinguishes compensation for employment from a
“relatively disinterested, ‘no-string’” grant.”
• Observation: Case is reminder to consider treaties and
interpretation in case law carefully.
56
56
Diligence
2016 – M did not file so IRS filed SFR

§911 •
• IRS issued notice of deficiency for $29K
Requirements • M filed Tax Court petition for redetermination
Met – Morgan, TC • M resided in Saudi Arabia when petition filed
• 2008 retired from Army
Summary Opinion • Owned home in GA and several relatives in US, US bank
2022-10 (6/23/22) accounts and drivers license, registered voter in US
• 2013 – took job in Saudi Arabia
• 2016 worked 45 hours per week
• Required to have SA drivers license, proof of residence and
medical insurance
• Free time – involved with social club in SA, visited
restaurants, traveled nearby
• Used 2016 leave to visit in US for 25 days
57
57
For §911 exclusion, taxpayer must meet 2 requirements:

Morgan – Entitled
•
1. Must either be physically present in a foreign country or countries during at least
330 full days in a 12-month period or be a “bona fide resident” of one or more
to §911 Exclusion? foreign countries for an uninterrupted period which includes an entire tax year,
and
YES 2.
• Tax Court – met. M was in US only 25 days in 2016. Meets 330-day test.
Must be an individual “whose tax home is in a foreign country.”
• Tax Court – met.
• ““[m]aintenance of a dwelling in the United States by an individual,
whether or not that dwelling is used by the individual’s spouse and
dependents, does not necessarily mean that the individual’s abode is in
the United States.””
• Community involvement and recreational activities in SA more
significant than in US.
• While in US did not visit any doctors.
• Georgia home also used by daughter.
• Paid no tax in SA but none was required.
• US ties with insurance (military provided) and bank (needed for SA
work) – no problem.
• Still resides in SA when petition filed. Employer rated him “highly
valued”.
58
58
Diligence
• Navy service 1989 to 2014

§911 Exclusion
• Offered job as port engineer in Iraq May 2014 – August
N/A If Unable to 2015
Show Home Not • Wages deposited to US bank
• Leased 2-bedroom condo in San Diego + stored 2 cars
in US, Penalties and some belongings in storage unit near condo
Waived – • 2014 – purchased home in Nevada
• Former spouse and 3 children lived there
Domdom, TC • 2014 and 2015 returns filed as HH with Nevada address
Summary Op. • Excluded wages under §911
2022-17 (8/30/22) • After left job in Iraq, started working in Alexandria, Egypt
• IRS found wages taxable.
59
59
For exclusion, must meet 2 tests:

Domdom –
•
1. Tax home is in a foreign country – NOT MET
Application of •
•
Generally, means one’s regular or principal place of business
Not treated as having a tax home in a FC for any period when abode
§911 Foreign •
is in US
Court – “Keeping in mind the importance of family and personal
Earned Income connections in determining an individual’s place of abode, we would
be reluctant to find that Iraq was petitioner’s place of abode during
Exclusion either year in issue. He was there only because of an employment

opportunity. He had no family ties there, and his personal ties were
minimal.”
• HH status means maintain a household that is principal place of
abode of qualifying child for over ½ of tax year. Per §152(c)(1)(B) –
child is QC if has same principal place of abode as taxpayer for over
½ of tax year.
• Children lived in US
2. Bona fide resident of one or more foreign countries or be physically
present in a country of countries for at least 330 days in a 12-month
period – MET
• §6662 penalty waived for reasonable cause
• Reasonably relied on paid return preparer who had all pertinent info
60
60
Diligence
Horse Breeding is Hobby – Skolnick, TC Memo 2021-139

(12/16/21)
Issue: Was Bluestone Farms, LLC, horse breeding farm in NJ, an activity not engaged in for profit for 2010-2013?
Partnership co-owned by Mr. Skolnick (2 wives in years involved) and Mr. Freeman
Total losses 1998 to 2009 = $7.9 million; no year with net income
Significant deficiencies for 4 years under exam where expenses were about 150% -300% of revenues.
Year Deficiency Late-file penalty §6662 penalty
Skolnicks
2010 $282,036 $67,026 $56,407

2011 $230,141 $46,028
2012 $189,077 $37,815
2013 $174,664 $34,933
Freeman
2010 $52,421 $10,484
2011 $38,514 $7,703
2012 $39,478 $7,896
2013 $21,385 $4,277
https://www.thetaxadviser.com/content/dam/tta/summaries/2021-139-skolnick.pdf
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61
Standardbred horses used in competitive harness racing

Skolnick -
•
• S’s father got him started. Father used his wealth to create own farm earlier.
operations Father also got Freeman involved; told him he might lose all his money but
meet interesting people.
• S had degree in physics and MBA
• When S and F started, both had early retired
• Started with business plan and budget which projected small profit in each of
first 3 years
• 1998 – purchased 60-acre former dairy farm for $559K, hired full-time mgr to
live on property; started to fix up farm
• 2000 – S returned to work because running out of money; created 2nd
business plan showing losses
• 2002 – while losing money, bought another property $850K
• 2003 and 2004 – more business plans projecting losses
• 2008 – S starts living on property
• 2009 – PA tightened racing laws requiring horses be there 180 days/year, so
fewer horses on the farm
• 2010 – S rec’d $10 million from trust set up by parents
• Continuing expenses and losses, some expenses benefitted S’s residence
62
62
Diligence
Skolnick – more • 2010-2013 – 7 to 10 employees both FT and PT

• B had website with searchable database of
on operations yearlings previously sold
and 2008 p/s • Expenses to trainers, vet, salesperson, CPA
exam • Medical equipment
• Used commercial accounting software
• Separate bank account
• 2008 – p/s audited by IRS

• No change
• No question raised of whether engaged in business
for profit
63
63
Skolnick – Tax • 6 experts on horse breeding, racing or real estate

testified
Court Review of • §162 deductions only allowed if activity engaged in
Trade or Business with actual and honest and genuine objective to
make a profit, based on facts and circumstances
& §183 • §183(d) safe harbor for horse breeding and racing if
show profit in any 2 of 7 consecutive years.
• B had no income in any year from 1998 through
2013
• Court applied the 9 factors of Reg. 1.183-2 --→
64
64
Diligence
Skolnick – Tax Court Analysis

Reg. §1.183-2 Court’s Analysis Conclusion
Factor
Carried on in Lots of records and data. Employees, advisers, insurance on horses, business plans. hobby
business-like No records on financial arrangements of owners or how add’l capital to be provided.
manner? No financial statements.
Some mix of personal expenses involved. Example – 2011-2013 about $100K
landscaping for S’s residence on farm + kept personal horses there.
B “largely insensitive to costs.” Did not take efforts to reduce costs including by selling
some of the property.
“key question is not whether the taxpayer keeps records, but whether taxpayer uses
his records to improve profitability and implement techniques for controlling
expenses and increasing income. … ‘purpose of maintaining books and records is
more than to memorialize for tax purposes the existence of the subject transactions; it
is to facilitate a means of periodically determining profitability and analyzing
expenses such that proper cost saving measures might be implemented in a timely
and efficient manner.’”
65
65

Factor
Expertise Prior experience; used consultants. Slight favor to
“But because serious hobbyists, no less than business
profit-motivated entrepreneurs, often seek expert
advice about the subjects of their interest, we
accord this factor relatively little weight.”
Taxpayer Also consider if reduced time on other activities. Neutral
time and S did so but also got millions from parent’s trust
effort fund.
Employees handled less glamorous part of work;
S&F engaged in those they enjoyed and provided
social status.
66
66
Diligence
Reg. §1.183- Court’s Analysis Conclusion

2 Factor
Expectation of LAND: Reg. 1.183-1(d) – land and farming considered single Neutral
appreciation activity only if farming reduces net cost of carrying the land.
in values “Thus, the land holding is treated as a separate activity from
the farming unless the latter benefits the former. That benefit
exists only if the farming activity (ignoring landholding-
specific expenses) generates net income that “reduces the
net cost of carrying the land.””
Here, farming losses exceeding $3.5 million were far greater
than expenses of the land which were only about $500K.So,
expectation of appreciation of the 230 acres not relevant.
HORSES: Court found more credible expert who said value
had declined.
67
67

Reg. Court’s Analysis Conclusion
§1.183-2
Factor
Success No evidence that S’s past software business or F’s insurance Neutral
carrying activities would predict success in horse breeding and racing.
other
activities No evidence either partner is a “turnaround” expert.
History of “Long periods of losses following the initial startup phase can Hobby
income or indicate the lack of a profit motive.”
losses “Large and sustained” losses are a problem. Here, 12 years of
losses and no profit years.
No evidence of “unexpected adverse events.”
Amount of “We are not persuaded that petitioners entertained a Hobby
occasional reasonable belief, during 2010-2013, that the outsized success
profits of a few horses would make Bluestone profitable overall.”
68
68
Diligence

Factor
Taxpayer’s B was not a needed financial resource for either partner. Hobby
financial status B losses resulted in none to little income tax owed for
partners. “These losses conferred substantial tax benefits on
petitioners.”
Elements of Mere enjoyment alone doesn’t make something a hobby. Hobby

personal “evidence at trial convinced us that the pleasure they
pleasure or derived from these activities, rather than any hope of making
recreation a profit, accounted for their persistence in subsidizing
Bluestone’s continuous losses.”
S lived on the property and wife enjoyed riding.
CONCLUSION Hobby
69
69
Skolnick – What • Losses predate 2010 and S & F have been carrying
forward NOLs.
about the NOL • Since B is partnership, owners should only have
carryforward + claimed losses if had sufficient basis each year.
penalties?
• Penalty waiver for reasonable reliance on preparer?
• Late filing - no. “Taxpayers have a personal and
nondelegable duty to file their tax returns on
time.”
• §6662 – yes, waive. Relied on CPA’s assistance for
20 years and provided B’s records to him.
70
70
Diligence
First paragraph – Huffs are “extremely wealthy couple who

Animal Activities •
wanted to supplement the income of their adult daughter.”
Are Businesses • Breeding miniature donkeys in Ecotone Farm, LLC; started
2004
Despite Losses – • H is investment manager; W works as lawyer
Huff, TC Memo • 2005 Forbes wealth report – Huffs on list at $750 million
2021-140 • 2013-2014 losses of $87K and $47K

• 2003 – H helped daughter (D) start dog grooming business
(12/21/21) and provided financial support. Did not produce much income
so H explored breeding activity.
• 2010 – acquired 20 miniature donkeys and sold some
• Hired knowledgeable people to help. Kept website, books and
records; separate bank account; records on the animals.
71
71
Huff – Tax Court Concludes – It’s a Business!

Reg. §1.183-2 Factor Court’s Analysis Conclusion
Carried on in business-like E had business plan evidenced by H’s action, but not written. Business
manner? Farm modified for the business.
Hired knowledgeable person to help.
Registered each donkey with national registry.
Kept detailed records of operations and the livestock. But
didn’t use the records to improve finances.
Expertise No prior experience; but did a lot of research. Business

Time and effort spent Huffs had limited time but “employed competent and Business
qualified people to carry on the activity
Expectation assets will No evidence donkeys would increase in value. Hobby

appreciate in value
72
72
Diligence

Factor
Success in other “A track record of success in other business ventures may Business
activities indicate that the taxpayer has the entrepreneurial skills and
determination to succeed in subsequent endeavors.”
H had past business success showing “keen business
acumen.”
History of income or No profit in years under exam. H argues is start-up phase and Business
loss for the activity had unexpected deaths of livestock. Court agreed about the
start-up phase but not the unexpected events as they should
have been expected.
Occasional profits from No profits yet Hobby

the activity
73
73

Reg. §1.183-2 Factor Court’s Analysis Conclusion
Financial status of owners “Huffs plainly had substantial income from other Business
sources. The losses from the miniature donkey
operation during the years at issue (again, $87,236 in
2013 and $47,039 in 2014) were dwarfed by the Huffs’
adjusted gross income of $21,469,246 and $29,814,468 in
2013 and 2014, respectively”
But unlikely were aiming to give unprofitable business
to their daughter, so were other motives. If they just
wanted to give $ to daughter, there were easier ways.
Elements of personal Per H, donkeys are “quite ugly” and you can’t ride Business
pleasure or recreation them.
74
74
Diligence
Review Questions 1 - 4
75
75
§469 Rentals and • Fact pattern 1: T rents out fully furnished vacation
property using online rental website. Renter gets
SE Tax – CCA linens, kitchenware, wi-fi service, daily maid service,
202151005 beach access and prepaid vouchers for ride-share
services. Avg period of customer use is 7.
(12/23/21)
• Fact pattern 2: rents out living quarters but no
access to kitchen or laundry. Rooms cleaned daily.
Avg period of customer use is 7 days.
• Neither owner is a real estate dealer.
• Wants to know if owes SE tax.
• https://www.irs.gov/pub/irs-wd/202151005.pdf
76
76
Diligence
CCA 202151005 -
1. Does characterization of activity as 2. Ignoring situations that do not
“rental activity” under §469(c)(2) involve a real estate dealer,
determine whether “rentals from
Issues and real estate” are excluded from net
when are rentals of living
quarters considered “rentals
earnings from self-employment tax
Conclusions under § 1402(a)(1)? from real estate” excluded
from SE tax under §1402(a)(1).
• No. That §469 definition is NOT
determinative for SE tax • When no services rendered
purposes. to occupants
• Fact pattern 1 – Owner is • BUT - If services re rendered
providing substantial services
that are not clearly required
beyond those required to
to maintain space in
maintain space suitable for
occupancy and for convenience condition for occupancy and
of renters. Owner owes SE tax “are of such a substantial
assuming it is a T or B. nature that the
• Fact pattern 2 – Owner does not compensation for these
provide substantial services so services can be said to
rental income excepted from SE constitute a material portion
tax under §1402.
of the rent” than SE tax owed
on net rental income..
77
77
• IRS Assessed:
No Home Office
• 2008 $44K tax + $8.8K penalties
for Emergency • 2009 $28.5K tax + $5.7K penalties
Room Doctor – • Numerous undocumented expenses IRS disallowed and
court agreed.
Elbasha, TC • Several issues – focus of summary is home office
Memo 2022-1 • 2008 deducted $18K for use of his condo as home
office. Listed hours worked per month but no
explanation for $18K
• E worked as emergency room doctor and testified
had no office at hospital so used 50% of his condo as
office
• Since did not meet patients at home, must be
principal place of business to be home office.
• https://www.thetaxadviser.com/content/dam/tta/summaries/2022-1-
elbasha.pdf
78
78
Diligence
Elbasha – Review • “may include “a place of business which is used by the

taxpayer for the administrative or management activities
of §280A of any trade or business of the taxpayer if there is no
other fixed location of such trade or business where the
“Principal Place taxpayer conducts substantial administrative or
of Business” management activities of such trade or business.” Sec.
280A(c) (flush language).”
• E did not have any contracts with employer verifying he
had no office or that it was needed for his job. No third
party testimony as to E’s need for a home office.
• If most services performed at hospitals with some follow
up at home office, home is not principal place of
business.
• Here, no proof that needed home office or had no
hospital office, no records to support $18K or that office
was 50% of condo
• Disallowed home office.
79
79
2012 – IRS assessed tax of $356K and §6662 penalty of $71K

Loss was Capital •
• M, attorney, started co-investing in real estate in 1986 with 100
Loss; Not Dealer acres eventually divided into 90 lots and sold; was a 13-year
project.
Property – • More investments, subdivisions and sales followed.
Musselwhite, TC • 2005 – formed DS & EM Investments, LLC as 2-member LLC
• 2006 – acquired 4 lots with 1-year personal guaranty from
Memo 2022-57 seller that would net $1 million within 1 year
(6/8/22) • 2007 – real estate market starts to decline; lots did not sell
• Brought action against seller for not meeting promises.
• 2011 and 2012 appraisals of 4 lots aggregate $18K. Report
notes “subject has no known prior sales history within the
past 3 years” and not known if currency for sale.
• 2012 – lots distributed to M
80
80
Diligence
LLC Forms 1065 for 2005 – 2012 listed business activity as

Musselwhite – •
investment property with no gross receipts or sales.
Capital or •
•
Capital gains or losses for 2006, 2007, 2009, 2010, and 2012
2005 – 2010 Balance sheet noted investment real estate
Ordinary • 2011 & 2012 – listed 4 lots as inventories
M testified he always viewed the lots as inventories
Determination
•
• Issue: Is $1 million loss from sale of 4 lots capital or ordinary?
• Do the lots fall under 1221(a)(1) (“dealer property”)?
• “stock in trade of the taxpayer or other property of a kind which
would properly be included in the inventory of the taxpayer if on
hand at the close of the taxable year, or property held by the
taxpayer primarily for sale to customers in the ordinary course of his
trade or business”
• “purpose of section 1221(a)(1) is to “differentiate between the
‘profits and losses arising from the everyday operation of a
business’ on the one hand . . . and ‘the realization of
appreciation in value accrued over a substantial period of
time’ on the other hand.” Malat v. Riddell, 383 U.S. 569, 572
(1966).”
81
81
Musselwhite – Dealer Property? NO Capital loss for M

Factor Court’s Analysis Outcome
1. purpose for which property was No intent to develop lots when acquired. Investment
acquired; No development when he owned them directly in few months prior to sale.
2. purpose for which property was All facts indicate held for investment.
held; If was any development possibility at start, it was abandoned by 2008.
3. improvements, and their extent, Seller made some improvements before 2009; no improvements by LLC or M. Investment
made to the property by taxpayer;
4. frequency, number, and continuity Per returns, nothing and by M, nothing. Investment
of sales; “all evidence supports the isolated nature of Mr. Musselwhite’s sale of the
four lots, rather than an ongoing sole proprietorship engaged in activities
related to real estate.”
5. extent and substantiality of the No development and change in wording on balance sheet not relevant. Investment
transaction;
6. nature and extent of the Significant income from law practice. Investment
taxpayer’s business;
7. extent of advertising or lack Real estate broker made efforts to sell the lots per letter provided at trial. Dealer
thereof; and
8. listing of the property for sale
directly or through a broker.
Appeal
82 would go to 4th Circuit which uses following factors to determine if property is dealer property.
82
Diligence
. Gross Income . Travel

IRS Attorneys ATG • A.1. Gross Income Types D. Disguised Hobbies
Issues List • A.2. Specific Retainer
• A.3. Annual Retainer
E. Corporate Expenses
F. Depreciable Books and
• A.4. Contingent Fee Periodicals
• A.5. Referral Fee G. Advanced Client Costs
• A.6. Client Trust Accounts • G.1. Computing the Adjustment
• A.7. Unreported Income H. Employee Versus Independent
• A.8. Deferral of Income Contractor Issue
• A.9. Noncash Sources I. Corporate Officer is an Employee
• A.10. Cash Payments J. 1099 Issues
• A.11. Constructive Receipt K. Form 8300 Issue
B. Expenses L. Related Entities/Taxpayers
• B.1. Entertainment incurred • L.1. Corporate Taxpayers
prior to 12/31/2017 • L.2. Corporate and Individuals
• B.2. Entertainment and Meals M. Personal Service Corporation
incurred after 12/31/2017 Accounting Periods and Tax
• B.3. Exceptions to the General Computations
Disallowance Rule • https://www.irs.gov/pub/irs-
pdf/p5602.pdf
• B.4. 50% Limitation on Meals
83
83
Issue: Was possession of IRA assets a taxable distribution?

Coins, Possession •
• Court: Yes https://dawson.ustaxcourt.gov/case-detail/1377-19
and IRA • IRS assessed tax of $250K for 2015 and $18K for 2016
Distribution – • Unreported taxable IRA distributions
• Court upheld §6662 accuracy related penalties
McNulty, 157 TC • Facts:
No. 10 (11/18/21) • 2015 – H&W each set up self-directed IRA based on research that
indicated ok for LLC owned by IRA to invest in American Eagle
(AE) coins and keep cons at IRA owner’s home w/o tax issue if
“titled” to LLC
• H&W had AE coins w/o evidence of who had legal title
• H used IRA funds to invest in condo and AE coins via LLC
• 2015 – H rec’d taxable IRA distribution of $295K, reporting $1,595
• 2016 – H rec’d $21,862 and did not report any
• 2015 – W used 3rd party services to set up self-directed IRA with
3rd party as independent qualified custodian (Kingdom Trust); 3rd
party created Green Hill, SMLLC.
84
84
Diligence
• W exercised sole control over her IRA’s investment

McNulty - decisions
continued • 2015 - Funded IRA via direct transfers from 2 existing
accounts
• IRA purchased interested in Green Hill (SMLLC)
owned and managed by W
• W had Green Hill use almost all $ to buy AE coins; GH
listed as buyer and W listed as recipient of shipment.
Coins were labeled as IRA coins.
• Similar activity twice by W in 2016
• W provided year-end valuation of IRA assets to Kingdom
Trust which filed Form 5498, IRA Contribution
Information, with IRS
• H&W did not seek advice from return preparer a CPA or
tell them AE coins were at their home
85
85
§408 provides requirements for administration by trustee, generally a bank

McNulty – Tax
•
• Even if W was Green Hill’s manager, her physical custody of AE coins is
taxable distribution.
Court • “IRA owners cannot have unfettered command over the IRA assets
without tax consequences.”
• “A custodian is required to maintain custody of the IRA assets, maintain
the required records, and process transactions that involve IRA assets.”
• “When coins or bullion are in the physical possession of the IRA owner (in
whatever capacity the owner may be acting), there is no independent
oversight that could prevent the owner from invading her retirement
funds. This lack of oversight is clearly inconsistent with the statutory
scheme. Personal control over the IRA assets by the IRA owner is against
the very nature of an IRA.”
• W “had complete, unfettered control over the AE coins and was free
to use them in any way she chose.”
• “IRA owner may act as a conduit or agent of the IRA custodian,
she may do so only as long as she is not in constructive or actual
receipt of the IRA assets.” Can’t take “actual and unfettered
possession of” IRA assets.
• Problem of using disregarded entity as LLC
86
86
Diligence
McNulty – • Generally, provides that IRA’s bullion not in

physical possession of trustee is a
Relevance of collectible.
§408(m) on • Final sentence – “if such bullion is in the
Investments in physical possession of a trustee”
Collectibles • Court: Doesn’t override “well-established rules
that IRA assets must be held by a trustee and
Treated As that an IRA owner who takes possession of IRA
Distributions assets receives a taxable distribution.”
https://dawson.ustaxcourt.gov/case-detail/1377-19
87
87
McNulty – • H&W – we did research to justify what we did

• Reliance on 3rd party is not a reasonable cause
Reasonable defense
reliance to waive • Did not show was professional advice; just used
their websites
penalties? No
• “Check Book’s website is an advertisement of
its products and services, and a reasonable
person would recognize it as such and would
understand the difference between
professional advice and marketing materials
for the sale of products or services.”
• Checkbook not disinterested as benefits from
sale of its services
• H&W did not ask their CPA
88
88
Diligence
Proposed • Ties to Setting Every Community Up for

Retirement Enhancement Act of 2019,
RMD/SECURE Act enacted Dec. 2019 as part of Further
Regulations – Consolidated Appropriations Act, 2020 (P.L.
REG-105954-20 116-94 (12/20/19)).
(2/24/22) • Quick review of SECURE Act ---→
• 64 pages in Federal Register
• https://www.govinfo.gov/content/pkg/FR-2022-02-24/pdf/2022-02522.pdf
89
89
Review (fyi) - Division O of P.L. 116-94 – SECURE Act

TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS
Sec. 101. Multiple employer plans; pooled employer plans. TITLE II--ADMINISTRATIVE IMPROVEMENTS
Sec. 102. Increase in 10 percent cap for automatic enrollment safe Sec. 201. Plan adopted by filing due date for year may be treated as in effect as of close
harbor after 1st plan year. of year.
Sec. 103. Rules relating to election of safe harbor 401(k) status. Sec. 202. Combined annual report for group of plans.
Sec. 104. Increase in credit limitation for small employer pension plan startup costs. Sec. 203. Disclosure regarding lifetime income.
Sec. 105. Small employer automatic enrollment credit. Sec. 204. Fiduciary safe harbor for selection of lifetime income provider.
Sec. 106. Certain taxable non-tuition fellowship and stipend payments treated as Sec. 205. Modification of nondiscrimination rules to protect older,
compensation for IRA purposes. longer service participants.
Sec. 107. Repeal of maximum age for traditional IRA contributions. Sec. 206. Modification of PBGC premiums for CSEC plans.
Sec. 108. Qualified employer plans prohibited from making loans through credit cards
and other similar arrangements. TITLE III--OTHER BENEFITS
Sec. 109. Portability of lifetime income options. Sec. 301. Benefits provided to volunteer firefighters and emergency
Sec. 110. Treatment of custodial accounts on termination of section medical responders.
403(b) plans. Sec. 302. Expansion of section 529 plans.
Sec. 111. Clarification of retirement income account rules relating to
church-controlled organizations. TITLE IV--REVENUE PROVISIONS
Sec. 112. Qualified cash or deferred arrangements must allow long-term employees Sec. 401. Modification of required distribution rules for designated
working more than 500 but less than 1,000 hours per year to participate. beneficiaries.
Sec. 113. Penalty-free withdrawals from retirement plans for individuals in case of birth Sec. 402. Increase in penalty for failure to file.
of child or adoption. Sec. 403. Increased penalties for failure to file retirement plan returns.
Sec. 114. Increase in age for required beginning date for mandatory Sec. 404. Increase information sharing to administer excise taxes.
distributions.
Sec. 115. Special rules for minimum funding standards for community newspaper plans. TITLE V--TAX RELIEF FOR CERTAIN CHILDREN
Sec. 116. Treating excluded difficulty of care payments as compensation for determining Sec. 501. Modification of rules relating to the taxation of unearned
retirement contribution limitations. income of certain children.
90
90
Diligence
REG-105954-20 Adds or amends:

Proposed SECURE • § 1.401(a)(9)–0 Required minimum distributions; table of contents
Act Regs – REG- •

•
§ 1.401(a)(9)–1 Minimum distribution requirement in general.
§ 1.401(a)(9)–2 Distributions commencing during an employee’s lifetime.
105954-20 •
•
§ 1.401(a)(9)–3 Death before required beginning date.
§ 1.401(a)(9)–4 Determination of the designated beneficiary.
(2/24/22) • § 1.401(a)(9)–5 Required minimum distributions from defined contribution
plans.
• § 1.401(a)(9)–6 Required minimum distributions for defined benefit plans
and annuity contracts.
• § 1.401(a)(9)–7 Rollovers and transfers.
• § 1.401(a)(9)–8 Special rules.
• §1.401(a)(9)–9 various amendments
• § 1.402(c)–2 Eligible rollover distributions
• § 1.402(c)–3 [Removed]
• § 1.403(b)–6
• § 1.408–8 Distribution requirements for individual retirement plans.
• § 54.4974–1 Excise tax on accumulations in qualified retirement plans.
• § 54.4974–2 Excise Tax on Accumulations in Qualified Retirement Plans
[Removed]
91
91
Revised §401(a)(9)(H) on defined contribution plans

A Popular Item •
• 10-year distribution period in certain cases
from Prop • If EE with designated beneficiary dies before required beginning date,
EE’s entire interest must be distributed by end of calendar year that
SECURE Act Regs includes 10th anniversary of death.

• Similar to existing 5-year rule in existing regs.
– Distributions • “if the designated beneficiary is an eligible designated beneficiary as defined in

section 401(a)(9)(E)(ii). Thus, in the case of a defined contribution plan, if the
employee dies before the required beginning date and the employee’s
from Defined designated beneficiary is not an eligible designated beneficiary, the 10-year
rule applies.”
Contribution Plan • “in the case of a defined contribution plan, if the employee has a designated
beneficiary who is an eligible designated beneficiary, the plan may provide
either that the 10-year rule applies or that the life expectancy payments rule
When Employee applies. Alternatively, the plan may provide the employee or the eligible
designated beneficiary an election between the 10-year rule or the life
Dies expectancy payments rule. However, if a defined contribution plan does not
include either of those optional provisions and the employee has an eligible
designated beneficiary, the plan must provide for the life expectancy payments
rule.”
• If EE dies before required start date, beneficiary can wait until 10th year for
distributions. But if die after start date and beneficiary is not eligible
designated beneficiary, must continue annual distributions until earlier of
expiration of life expectancy or end of 10th year after death.
92
92
Diligence
Prop. Reg. • Page 11 of Pub 590B

• If beneficiary should
Includes Items have taken RMD on
Contrary to 2021 inherited IRA in 2021
but did not know that,
Pub 590B will IRS provide relief?
• Will final regs tie to
prop regs or
explanation in Pub
590B?
• Relief in Notice 2022-
53 (10/7/22) [next
slide]
https://www.irs.gov/pub/irs-
pdf/p590b.pdf
93
93
Final regs under §401(a)(9) will apply no earlier than 2023 distribution
Stretch IRA •
calendar year.
SECURE Act Relief • Otherwise, per SECURE Act, apply to distributions with respect to
employees who die after 12/31/19
– Notice 2022-53 • IRS rec’d comments on issue of beneficiaries not taking distributions
in 2021 and 2022 for individuals who died in 2020; sought transition
(10/7/22) relief.
• Guidance for some items that apply for 2021 and 2022.
• “A defined contribution plan that failed to make a specified RMD (as
defined in Section IV.C of this notice) will not be treated as having
failed to satisfy section 401(a)(9) merely because it did not make that
distribution.”
• “IRS will not assert that an excise tax is due under section 4974. If a
taxpayer has already paid an excise tax for a missed RMD in 2021 that
constitutes a specified RMD, that taxpayer may request a refund of
that excise tax.”
• Explains key elements of the proposed regs issued Feb 24, 2022.
• https://www.irs.gov/pub/irs-drop/n-22-53.pdf
94
94
Diligence
IRS Review of • Are health and wellness coaching expenses medical

expenses for §213 and Health Savings Accounts and
Medical FSAs?
Deduction Rules • IRS can’t give specific advice in info letter, just
general info in well-known law.
– Info 2022-0005 • “Some things to consider to determine whether the
(4/25/22) costs of health and wellness coaching are
deductible as medical expenses are: whether the
costs are incurred for diagnosing, treating,
https://www.irs.gov/pub/irs-
wd/22-0005.pdf mitigating, preventing or alleviation of the
taxpayer’s disease; whether the costs are merely
beneficial to the taxpayer’s general health such that
they might be considered the taxpayer’s personal
expense; and whether the taxpayer would not have
incurred the expense but for the taxpayer’s medical
condition.”
95
95
• At August 2022, 14 states have ban on abortions, as

Medical Care permitted by:
Definition and • Dobbs v Jackson Women’s Health Organization, No.
19-1392 (USSC 6/24/22)
Abortion – Review • Tax relevance:
of Reg. 1.213- • Deductible medical expense on Schedule A? See next
1(e)(1) and more slide
• §213 definition also relevant elsewhere such as for
§223 Health Savings Accounts and elsewhere
• Employer health plans that cover abortions and
travel
• Employers should review plans if have employees
in states where abortion is now illegal.
• Also review info from Departments of Labor and
HHS, ERISA rules, Executive Orders 14076 (7/8/22)
and 14079 (8/3/22).
96
96
Diligence
Reg. 1.213-1(e) Definitions -

Medical Care •
• (1) General.
Definition and • (i) The term medical care includes the diagnosis, cure, mitigation, treatment, or
prevention of disease. Expenses paid for “medical care” shall include those
paid for the purpose of affecting any structure or function of the body or
Abortion – Review for transportation primarily for and essential to medical care. See
subparagraph (4) of this paragraph for provisions relating to medical insurance.
of Reg. 1.213- • (ii) Amounts paid for operations or treatments affecting any portion of the
body, including obstetrical expenses and expenses of therapy or X-
ray treatments, are deemed to be for the purpose of affecting any structure or
1(e)(1) and more function of the body and are therefore paid for medical
care. Amounts expended for illegal operations or treatments are not
including Pub 502 •

deductible.
Rev. Rul. 73-201 – “expenditures made to prevent conception and
childbirth or to terminate pregnancy” are deductible medical
expenses. Examples included legal vasectomy and abortion.
• Purpose is to affect a structure and/or a function of the body.
• Rev. Rul. 97-9 – cost of marijuana for medical purposes is not
deductible medical care because is a controlled substance under
federal law.
• Refers to Rev Rul. 73-201, noting that neither procedure in that ruling was
illegal under state law.
97
97
USSC Denies Cert 21-966, NEW YORK, ET AL. V. YELLEN, SEC. OF TREASURY,
ET AL
to Hear 4 States • States lost in 2nd Circuit
Challenge to $10K • No. 19-3962 (2d Cir. 10/5/21), aff'g No. 18-CV-
6427 (S.D.N.Y. 9/30/19)
SALT Cap – • https://www.supremecourt.gov/orders/courtorders/041822zor_19
4/18/22 m2.pdf
98
98
Diligence
2012 – P bought home in NY titled in name of his 100% owned

Home Mortgage •
corporation. Mortgage was refinanced “several times” with
Interest same lender.
• 2017 – sold home
Deduction Proof • 2016 – IRS disallowed mortgage interest deduction of $75,000
+ assessed penalties under §6662(a). No issue that home was
Lacking – P’s principal residence. Return prepared by P’s CPA.
Pressman, TC • P unable to provide documentation that he PAID $75K in 2016.
• For trial, P produced handwritten 1098 but could not show
Summary Op. issued by lender. Emails produced used terms accrued and
charged, rather than “paid.”
2022-15 (8/29/22) • Query: If could prove, any issue that P is not borrower?
• Penalty upheld – P did not keep adequate books and records
or substantiate reported expenses. “Failed to meet the burden
of providing that he acted with reasonable cause and in good
faith.”
99
99
• December 2014 – A donated 120 items from her

Strict Compliance collection of Native American jewelry and artifacts she
Does Not Satisfy and her late husband collected over many years.
• Donor (museum) and A executed “Deed of Gift” dated
§170(f)(8) – 12/19/14
Albrecht, TC • 5 pages
Memo 2022-53 • List of items
• Signatures of A and museum official
(5/25/22) • “Conditions Governing Gifts” to the museum
including are unconditional and irrevocable
• “Gift Agreement” noted but not included with deed.
• IRS disallowed – CWA required by §170(f)(8) missing
100
100
Diligence
• CWA requirement of §170(f)(8) “is a strict one”

Albrecht -
continued • Deed was not a CWA as “it did not specify whether the
Wheelwright Museum provided any goods or services in
return for the donation or state that it represented the
entire agreement between the museum” and A
• Deed does include ““unconditional and irrevocable,” it
continues that “all rights, titles and interests held by the
donor in the property are included in the donation,
unless otherwise stated in the Gift Agreement.””
• A did not get that agreement before 2014 return was
filed.
• Court: “Substantial compliance, unfortunately for
petitioner, does not satisfy the strict requirements of
section 170(f)(8)(B). See 15 W. 17th St. LLC, 147 T.C. at 562.”
101
101
NO CWA, No • Affirming Izen, 148 TC 71 (2017)

Charitable • 2010 1040X claimed charitable deduction of
Donation $338,080 for 50% interest in 40-year-old plane
Deduction for • IRS and Tax Court – did to satisfy “strict”
requirements of §170(f)(12) on donation of motor
Airplane – Izen, vehicles, boats and planes; CWA with (f)(12)
No. 21-60679 (5th requirements such s VIN, donee certification about
specific use or transfer missing
Cir., 6/29/22) • Aircraft Donation Agreement attached to return
https://www.ca5.uscourts.gov/opini not sufficient, even lacked Izen’s TIN
ons/pub/21/21-60679-CV0.pdf
• Form 8283 omitted Izen’s TIN
• Doctrine of substantial compliance doesn’t apply
to statutory requirements
102
102
Diligence
No Charitable • 2015 – assigned 4% interest in Burbank HHG Hotel,

LP, [('Burbank')] a . . . limited partnership where H
Deduction on was limited partner, to the Pi Foundation to create
Stock – Keefer, a DAF at Pi.
• B owned 1 hotel
3:2020cv00836 • Date of donation – B only had tentative agreement
(ND TX, 7/6/22); to sell hotel for $54 million. That happened about 2
weeks after K made transfer
rehearing denied
• Contract included 30-day review period for buyer
(ND TX, 8/10/22) • K determined value of 4% interest at $1,257,000,
excluding other p/s assets
• https://scholar.google.com/scholar_case?case=13361318541186863729&q=keefer+2022&hl
=en&as_sdt=2003
• Link to denial of rehearing -
https://scholar.google.com/scholar_case?case=12524760459959704095&q=keefer+2022&h
l=en&as_sdt=2003
103
103
3 months after assignment, K rec’d Acknowledgement Letter

Keefer - •
from Pi, which read in full:
continued • “Thank you for your donation to The Pi Foundation, Inc. of
a 4.00% interest in Burbank HHG Hotel, LP. The Pi
Foundation, Inc., is a 501(c)(3) nonprofit organization. Your
contribution is tax-deductible to the extent allowed by law.
No goods or services were provided in exchange for your
generous financial donation. Please keep this page for
your records.”
• 2015 – Ks claim charitable donation of $1,257,000 + attach
Form 8283 + appraisal + DAF Packet and acknowledgement
letter
• July 2019 – IRS sends notice of deficiency disallowing donation
deduction
• Tax owed $423,304 + $84K penalties + interest
• Why? No CWA showing that done “has exclusive legal
control over the assets contributed”, appraisal missing ID
number of appraiser
104
104
Diligence
K paid deficiency and brought suit in DC

Keefer - •
• Various procedural matters including issue raised by K that IRS only
continued raised issue of “anticipatory assignment of income doctrine” during
litigation. Court reviewed this issue
• “"The assignment of income doctrine holds that one who earns
income cannot escape tax upon the income by assigning it to
another." … Instead, "if one, entitled to receive [income] at a future
date . . . makes a grant of it by anticipatory assignment, he realizes
taxable income as if he had collected [it] . . . and then paid it
over." …"Ultimately, the question is whether the taxpayer himself ever
earned income, or whether it was earned instead by the assignee,"
or, in the terms of Justice Holmes's famous metaphor for this
doctrine (set out in Lucas v. Earl, 281 U.S. 111, 115 (1930)), "whether the
fruit has been attributed to a different tree, or whether instead the
entire tree has been transplanted.“”
• Did K gift the earnings from the asset sale or the asset itself?
• K – gave 4% interest in p/s at time when sale was not definite
• IRS – sale was “practically certain” when K assigned the p/s
interest to Pi
105
105
Court applies Humacid Co., 42 T.C. 894 (1964) – donation of appreciated stock
Keefer -
•
is respected if donor
continued •
•
(1) gives property away absolutely and parts with title,
(2) before the property gives rise to income by way of a sale. “Generally,
analysis of the second Humacid prong focuses on whether a legal right to
income from redemption of the appreciated stock vested before the
donor transferred ownership and control of the asset.”
• Court applies Humacid factors
• (2) P/S right to income not yet vested when Ks assigned interest to Pi
• Did not agree with IRS argument from Caruth, 865 F2d 644 (5th Cir.
1989) that “the fruit was exceptionally ripe” to trigger fruit of tree
doctrine. “We fail to see why the ripeness of the fruit matters, so long
as the entire tree is transplanted before the fruit is harvested.” So
factor 2 in Humacid is met.
• (1) K assigned 4% interest and “ retained that partial interest in the asset
after the assignment and the anticipatory assignment of income doctrine
would apply, as the whole asset was not transferred before the Hotel sale
closed on August 11, 2015. In other words, reverting to Justice Holmes's
metaphor, did the Keefers transplant the whole tree on June 18, 2015,
when Kevin assigned the interest to Pi?” --→
106
106
Diligence
Did Ks carve a partial interest out of the assigned asset by assigning the 4%
Keefer –
•
interest "subject to an oral agreement“?
continued • “In other words, reverting to Justice Holmes's metaphor, did the Keefers
transplant the whole tree on June 18, 2015, when Kevin assigned the
interest to Pi?”
analysis of (1) • If yes – they retained partial interest in the asset after assignment and
the anticipatory assignment of income doctrine applies because entire
factor asset not transferred before close of hotel sale.
• Court – per K’s appraisal, Ks did not donate a true p/s interest but
instead “gave away 4% of the net cash from the sale of one of the
Partnership’s assets…cash the Ks would have otherwise received from the
sale of the hotel. This is the classic assignment of income.”
• Appraisal also indicates that oral agreement provides that interest
donated to Pi is not subject to Partnership Agreement’s Available
Cash Flow provisions. Instead, there was an alternative arrangement
– that Pi would only share in proceeds of Seller’s Closing Statement
and not receive pro rate share in other net assets of the Partnership.
• After assignment, Pi only had right to share in net proceeds of hotel
sale – it would not get pro rata share in other p/s assets.
• Anticipatory assignment of income doctrine applies here.
107
107
• Court holds for IRS – no CWA as required by §170(f)(8)

Keefer – CWA [CWA for any donation of $250 or more] and (18)
Requirement [contributions to donor advised funds]
• (f)(18) – CWA per 170(f)(8)(C) must state that “such
organization has exclusive legal control over the
assets contributed.”
• Doctrine of substantial compliance n/a to these
requirements.
• “Acknowledgment Letter alone contains nothing to
prove "exclusive legal control," Court finds that §
170(f)(18) was not satisfied”
• “a court might consider outside documents to
supplement an otherwise-deficient CWA so long as
the plain text of the CWA directs and limits the
inquiry”
• Acknowledgement letter doesn’t refer to DAF packet
108
108
Diligence
IRS Hiring 200 • Hiring in 50 locations throughout U.S. in LB&I, SBSE

and technical positions
Attorneys to • “Promoters have been particularly active
Combat developing and marketing tax shelter schemes that
purportedly enable taxpayers to avoid paying what
Syndicated they legally owe. These new hires will help the IRS
Conservation manage the increasing caseload in its multi-year
effort to stamp out these abusive schemes and
Easements and ensure that those participating in them pay the tax
Other “Tax they owe plus penalties.”
• https://www.irs.gov/newsroom/irs-chief-counsel-looking-for-200-
Schemes” – experienced-attorneys-to-focus-on-abusive-tax-deals-job-openings-posted
IR-2022-17
(1/21/22)
109
109
Conservation • 11th Circuit reversed TC decision that H conservation

easement violated “protected-in-perpetuity”
Easement requirement of §170(h)(5) and Reg 1.170A-14(g)(6)(ii).
Carryover • “in the event of judicial extinguishment, the
Easement deed subtracts the value of post-
Deduction and donation improvements to the property from the
Invalid Reg – extinguishment proceeds before determining the
donee’s share of the proceeds”
Hewitt, No. 20- • H: TD interpretation is incorrect & argue reg is
13700 (11th Cir., invalid as it violates APA because Treasury failed to
respond to significant comments rec’d AND invalid
12/29/21) under Chevron as unreasonable interpretation of
the statute.
https://media.ca11.usc
ourts.gov/opinions/pu • 11th Circuit – we agree with H
b/files/202013700.pdf
110
110
Diligence
H owned over 1,000 acres in Alabama and in 12/12 donated easement

Hewitt - •
to Pelican Coast Conservancy, Inc. to forever keep property in
natural condition. Deed included extinguishment clause should
continued future events render purpose impossible to accomplish.
• Claimed donation of $2,788,000 for 2012 w/ carryover
• APA requires agency to address significant comments.
• Treasury rec’d over 700 pages of comments from 90 orgs and
individuals.
• 13 addressed proposed extinguishment proceeds reg including
some saying prop. reg. was unworkable.
• Preamble to final reg doesn’t address some of these 13 comment
letters.
• TC thought Treasury actions fine and that “APA did not “mandate that
an agency explain the basis and purpose of each individual
component of a regulation separately.”” 11th Circuit disagreed.
• Observations: Watch for IRS next step – appeal? Revise reg? Will
Congress step in?
111
111
• Per §170(h) and regs, one of req for conservation

Conservation easement donation is that “easement’s conservation
Easement purpose must be guaranteed to extend in perpetuity to
qualify for the deduction. See 26 U.S.C. (I.R.C.) §
Donation Reg 170(h)(5)(A).”
Permissible – • “Reg. § 1.170A-14(g)(6)(i). In these events, the
conservation purpose may still be protected in
Oakbrook Land perpetuity “if the restrictions are extinguished by
Holdings, LLC, No. judicial proceeding and all of the donee’s proceeds . . .
from a subsequent sale or exchange of the property are
20-2117 (6th Cir., used by the donee” to further the original conservation
purpose. Proceeds are calculated by a formula in §
3/14/22) 1.170A-14(g)(6)(ii)” (the “proceeds regulation”).
• O challenges reg as improperly promulgated for
violating APA’s notice-and-comment requirement.
• Tax Court held reg valid.
112
112
Diligence
Oakbrook Land 1. Treasury inadequately explained rationale for the proceeds

regulation in its concise general statement of basis and purpose.
Holdings, LLC – • 6th – basis and purpose of reg “are apparent” per background
section of prop. reg. Stated “need for restrictions in the deed
O’s APA to ensure that an easement served its conservation purpose
in perpetuity”
arguments and • “Taken together, then, the statutory text and the legislative
history that Treasury contemplated in promulgating Treas.
6th Circuit Reg. § 1.170A-14(g)(6)(ii) illuminate the regulation’s basis and
purpose: to provide an administrable mechanism that would
response ensure that an easement’s conservation purpose as per I.R.C.
§ 170(h)(5)(A) continued to be protected should the interest
be extinguished. That the regulation allots proceeds in a
manner more favorable to donees than to donors merely
demonstrates Treasury’s acute awareness of Congress’s
decision to concern itself with the welfare of one entity over
the other once the donation was made. Because we can
discern this from the information that Treasury provided
during the rulemaking, its concise statement suffices.”
113
113
• 2. Treasury failed to respond to certain comments about the reg, which raises
Oakbrook Land significant issues.
• “Requiring an agency to respond to every comment regardless of its
Holdings, LLC – content would transform rulemaking into
• a game or a forum to engage in unjustified obstructionism by making
O’s APA cryptic and obscure reference to matters that “ought to be”
considered and then, after failing to do more to bring the matter to
arguments and the agency’s attention, seeking to have that agency determination
vacated on the ground that the agency failed to consider matters
6th Circuit “forcefully presented.””
• “we have repeatedly concluded that an agency must “give reasoned
response responses to all significant comments in a rulemaking proceeding,” not
that an agency must respond to all comments”
• 6th Circuit affirmed Tax Court
• Also found contrary result in Hewitt, 21 F4th 1136 (11th Cir. 2021) to have
“unpersuasive” reasoning.
• https://www.opn.ca6.uscourts.gov/opinions.pdf/22a0048p-06.pdf
• Hewitt also mentioned in footnote 3 of Corning Place Ohio, LLC, et al,
TC Memo 2022-12 (2/28/22) https://dawson.ustaxcourt.gov/case-detail/12428-20
• 10/4/22 – Oakbrook filed petition for Writ of Certiorari with US

Supreme Court
114
114
Diligence
Children of divorced couple lived over 50% of time with mother

Which Parent Can •
• Rules for divorced parents - Reg. § 1.152-4
Claim the Child – • Child must receive over ½ of support from parents
• Child in custody of 1 or both for over ½ of year
Ola-Buraimo, TC • Custodial parent signs written declaration that won’t claim child
as dependent and other parent attaches it to their return
Summary Opinion • B did not meet all of above requirements
2022-2 (2/14/22) • “there is no indication that petitioner’s former spouse signed a
declaration that she would not claim the child in question as a
dependent, and petitioner did not attach any such written
declaration to his tax returns for the years in issue.”
• Divorce order not enough – “It is the Code, and not state court
orders, that determines a taxpayer’s eligibility to claim a
deduction for federal income tax purposes.”
• So also can’t claim EITC or head-of-household status
115
115
Hicks and Johnson, never married, had 2 minor children

Noncustodial •
• 2014 – H&J lived apart
Parent Allowed to • Over ½ of year, children lived with J and her mother
Claim Child – • H provided over ½ of support for children
• 2006 shared parenting agreement in state court, signed by
Hicks, TC Memo H&J
2022-10 (2/23/22) • Stated each would claim a child as every year on tax
return unless enter a new agreement in writing
• 2009 – court agreement starting 2009 that H claims both
children every year; J did not sign
• 2014 – H claims both children on his return
• No Form 8332 or similar agreement attached signed by J
• J did not file return for 2014
• J’s mother filed return and claimed dependency exemption
for J and both children
116
116
Diligence
Children are not qualifying children for H because did not live
Hicks – who can •
with H over ½ of year
claim children? • Not qualifying relative because both J and her mother can
claim children as qualifying children
• But J’s mother claimed J as dependent so J can’t claim any
dependent
• Tiebreaker n/a as J ineligible to claim children
• J’s mother can claim both children
• So, not qualifying relatives of H in 2014
• §152(e) and regs – Noncustodial parent can claim children if:
• (1) custodial parent “signs a written declaration (in such
manner and form as the Secretary may by regulations
prescribe)” stating they “will not claim such child as a
dependent” for year at issue, and
• (2) noncustodial parent “attaches” written declaration to
their return for that year.
117
117
Written declaration required by noncustodial parent

Hicks – what •
• Form 8332 or equivalent written statement such as the two
about lack of state court orders
• Court order entered before 7/2/08 can qualify as written
Form 8332? declaration if meets other requirements. Later agreement
not signed but doesn’t restrict the 2006 agreement so it
can be followed in 2014.
• Other requirements to be met:
• (1) children names,
• (2) years for which claims released,
• (3) custodial parent’s signature,
• (4) signature date,
• (5) noncustodial parent’s name, and
• (6) both parents’ Social Security numbers.
All but #6 present in 2006 order.
• Court – ok that SSNs missing.
118
118
Diligence
Hicks – • 2014 – H may claim one child per 2006 agreement.

• But – declaration not attached to H’s 2014 return
conclusion • Court – return open while under exam and in
court
• Prop reg 1.152-5(e) allows H to substantiate
while year open
• Observation: Best to have the signed Form 8332.

• https://www.irs.gov/forms-pubs/about-form-8332
119
119
Several requirements to
Final Regs Modify •
qualify for PTC including that
employer does not offer
Affordability Test affordable coverage.
to Qualify for • 2014 regs interpreted §36B to

provide that if coverage for
Premium Tax employee was affordable, no
family member qualified for
Credit - TD 9968 PTC even if employer coverage
for them was not affordable.
(10/13/22) • FIXED with final regs,
effective 60 days after
publication in Federal
Register.
• https://public-
inspection.federalregister.gov/202 Neal and Wyden send letter of support
2-22184.pdf (5/19/22)
https://waysandmeans.house.gov/sites/democrats.waysa
• Prop regs issued 4/7/22 (REG- ndmeans.house.gov/files/documents/20220519NealWyden
114339-21) FamilyGlitchCommentLetter_Signed.pdf
• https://www.govinfo.gov/content/pkg/
FR-2022-04-07/pdf/2022-07158.pdf
120
120
Diligence
Consider required contribution percentage:

Example of New •
• Affordability test at §36B(c)(2)(C)(i)(II) – “employee’s required
Affordability Test contribution (within the meaning of section 5000A(e)(1)(B)) with
respect to the plan exceeds 9.5 percent of the applicable
for PTC taxpayer’s household income.” While amount is indexed annually, reg
preamble (any my modified examples below) uses 9.5%.
• Reg. 1.36B-2(c)(3)(v)(A)(2)(D) examples

• EX 1 – in 2023, Carol works for X that offers health insurance to
employees and their spouses. For self-only coverage, C must
contribute an amount that does not exceed 9.5% of Carol’s 2023
household income. RESULT: Self-only coverage is affordable and
Carol not eligible for PTC.
• EX 2 – Same except Carol married to Jerry and they file jointly. To

enroll both, Carol must contribute an amount that exceeds 9.5% of
their household income. Jerry doesn’t work for an employer that
offers affordable coverage. RESULT: J not eligible for minimum
essential coverage from Carol’s employer and has no offer from own
employer so Jeff is eligible for PTC in 2023.
121
121
Why changed now:

More on §36B
•
• Exec Order 14009 (1/28/21), Strengthening Medicaid and the Affordable
Care Act (ACA) directs Treasury “to review, as soon as practicable, all
Regs … existing regulations and other agency actions to determine whether the
actions are inconsistent with the policy to protect and strengthen the
ACA.”
• https://www.federalregister.gov/documents/2021/02/02/2021-02252/strengthening-
medicaid-and-the-affordable-care-act
• IRS & Treasury “have tentatively determined that rule in §1.36B–2(c)(3)(v)(A)(2) is not
required by relevant statutes and is inconsistent with overall purpose of ACA to
expand access to affordable health care coverage.”
• IRS & Treasury “propose to exercise regulatory authority granted in section
36B(h) to adopt an alternative reading of section 36B(c)(2)(C)(i). Under this
alternative reading, affordability of employer coverage for related individuals in
the employee’s family is determined based on the cost of covering the
employee and those related individuals.”
• Changes:
• Changes affordability of employer-offered coverage for family members as
determined based on employee’s share of cost of covering employee and family
members, rather than only looking at cost of coverage offered to employee.
• Adds minimum value rule for family members of employees that looks at benefits
provided to the family.
122
122
Diligence
Simplified method to obtain add’l time under 301.9100-3 to

Additional Time •
make a “portability” election under §2010(c)(5)(A)
to Make Late • Allows deceased spousal unused exclusion (DSUE) amount to be
available to surviving spouse’s subsequent transfers during life
DSUE Election – •
or at death.
If qualify under new method, no PLR or user fee needed for add’l
Rev. Proc. 2022-32 time to make portability election.
• Many PLRs processed, most within 5 years of date of death.
(7/8/22) • Reduces number of situations where taxpayer will need to seek
§9100 relief
• Still – Decedent’s estate makes election on timely filed Form 706.
• If estate not required to file 706, Reg. 20.2010-2(a)(1) provides that
due date is 9 months after date of death or last day of period
covered by an extension if one was obtained.
• Supersedes Rev. Proc. 2017-34 which had allowed automatic
extension to 2nd anniversary of date of death.
• Effective 7/8/22
• https://www.irs.gov/pub/irs-drop/rp-22-32.pdf
123
123
To qualify for relief under new procedures:

Rev. Proc. 2022-32 •
• File complete and properly prepared Form 706 on or before 5th
– New Process anniversary of decedent’s date of death.
• State at top of 706: “FILED PURSUANT TO REV. PROC. 2022- 32 TO
ELECT PORTABILITY UNDER § 2010(c)(5)(A).”
• If later determined 706 required under §6018, “grant of extension as
provided in section 4.02 of this revenue procedure is deemed null
and void ab initio”
• “extension of time to elect portability granted under this revenue
procedure does not extend period during which surviving spouse or
surviving spouse’s estate may make a claim for credit or refund
under §6511(a)”
• n/a if 706 filed within time stated at 20.2010-2(a)(1)
• Portability option already addressed on the return.
• n/a if required to file 706 per §6018(a)
• No §9100 relief as here due date provided by statute, not by
regulation.
• If don’t qualify for relief under Rev Proc 2022-32 and not precluded,
can still seek §9100 relief via PLR and §9100 regs.
124
124
Diligence
Rev. Proc. 2022-32 3 examples included in Rev. Proc. 2022-32

Example 1
– Example • 1/1/18 – S1 dies survived by S2; no 706 required
or filed
• 1/29/21 – S2 dies with taxable estate of
$17,000,000
• 10/29/21 – S2’s executor files 706 claiming
exclusion of $11.7 million and pays estate tax
• 12/1/22 – S1’s executor files complete 706
reporting DSUE of $11,180,000 + includes RP 2022-
32 statement at top of form; IRS accepts return
• By 10/29/24 (end of statute of limitations per
§6511(a)) – S2’s executor files claim for refund
(Form 843)
125
125
Federal Tax Issued in 2022

https://www.sjsu.edu/people/annette.nellen/website/2022regs
Regulations and .html
IRS Rulings
To find out what OIRA at OMB is reviewing, search for

“Treasury” at:
https://www.reginfo.gov/public/jsp/EO/eoDashboard
.myjsp
OIRA = Office of Information and Regulatory Affairs
List of reg project (search for Treasury) -

https://www.reginfo.gov/public/do/eAgendaMain
126
126
Diligence
3.Cryptocurrency
& Digital Assets
127
127
VC Question Modified for Draft 2022 Form 1040 (9/1/22)

https://www.irs.gov/pub/irs-dft/f1040--dft.pdf
No instructions yet.
Compare to 2021:
Observations:
• Will “digital asset” be per new §6045 definition? If yes, there is a problem in
that regs are needed to know the complete definition and that likely won’t
happen until after forms are finalized.
• This term is broader than virtual currency.
• What is a “financial interest”? Never defined by IRS.
128
128
Diligence
https://www.irs.gov/pub/irs-pdf/p3744.pdf
IRS Strategic Plan
FY2022-2026, July
2022 and Virtual
Currency
Activities
129
129
9/15/22 Ethereum • What happened?

Conversion • 9/12/22 Twitter post
• https://twitter.com/EthereumPoW/status/1569428021437935617 /
(mostly) to PoS
Tax effect?
Is new coin materially different from original

ETH? (§1001 and Cottage Savings, 499 US 554
(1992)) considerations)
130
130
Diligence
Additional Virtual • Tax treatment of coins rec’d from Proof of Stake

• Jarrett case ended when IRS issued refund – so no
Currency Issues judicial answer
for 2022 and • Issues include:
Beyond • When taxable (when rec’d or when disposed of)?
Character?
• §469 purposes – Trade or Business or Portfolio
Income
• Sourcing – state and international
• Treatment of loss including if lost in bankruptcy or
worthlessness.
• How will §6045 broker reporting and §6050I
reporting work? Waiting for regs.
131
131
#99 – “Sections 1001 and 1058.—Determination of Amount of

Virtual Currency •
and Recognition of Gain or Loss; Transfers of Securities
Item on Rev. Proc. Under Certain Agreements.—Whether a taxpayer recognizes
gain or loss on the transfer of virtual currency in exchange
2022-3 for a contractual obligation that requires the return of
identical virtual currency to the taxpayer or on the transfer
No Rulings List of identical virtual currency to the taxpayer in satisfaction of
the contractual obligation.”
• https://www.irs.gov/irb/2022-01_IRB
• Observations:
• Treasury Greenbook for FY 2023 includes a §1058 proposal
among four on modernizing rules including for digital assets:
• “amend the securities loan nonrecognition rules to provide that
they apply to loans of actively traded digital assets recorded on
cryptographically secured distributed ledgers, provided that the
loan has terms similar to those currently required for loans of
securities.”
• https://home.treasury.gov/system/files/131/General-Explanations-
FY2023.pdf
132
132
Diligence
More Summons • 8/15/22 – District Court for Central District of CA

entered order allowing IRS to serve John Doe
Activity by IRS Summons on SFOX, a “cryptocurrency primer
Against Crypto dealer” seeking info on customers with at least
$20K of transactions in any one year for 2016
Trading Platform through 2021.
– 8/16/22 DOJ • Per Comm’r Rettig: “The John Doe summons
remains a highly valuable enforcement tool that the
Press Release U.S. government will use again and again to catch
tax cheats and this is yet one more example of that.
I urge all taxpayers to come into compliance with
their filing and reporting responsibilities and avoid
compromising themselves in schemes that may
ultimately go badly for them.”
• https://www.justice.gov/opa/pr/court-authorizes-service-john-doe-
summons-seeking-identities-us-taxpayers-who-have-used-2
133
133
Select statements in gov’t petition for summons:

Government’s •
• ““Cryptocurrency” is one kind of “virtual currency.””
Arguments for • “Cryptocurrency is a type of virtual currency that utilizes
cryptography to secure transactions that are digitally recorded on
the Summons … a distributed ledger (such as a blockchain).”
• “Based on the regulations applicable to SFOX, as well as SFOX’s
historical business practices, the IRS expects that in response to
the John Doe summons, SFOX will be able to provide information
about the identities and cryptocurrency transactions of SFOX
users, which the IRS will then be able to use in conjunction with
other publicly available information to examine whether these
users have complied with the internal revenue laws.”
• IRS has identified 10 specific individuals with SFOX accounts who
failed to report transactions on returns. Including someone who
answered “yes” to 2019 Form 1040 VC question but did not report
G/L from crypto transactions.
• IRS notes lack of 3rd party reporting
• Query: Once §6045 reporting exists, will IRS stop the John Doe
summons on exchanges?
134
134
Diligence
Southern District Court of New York authorized IRS to issue

Another IRS •
John Doe summons requiring M.Y. Safra Bank to produce info
Summons for about U.S. taxpayers who may have failed to report to IRS, and
pay taxes on, cryptocurrency transactions.
Crypto • Why? SFOX, cryptocurrency prime broker, used Safra’s
banking services
Information • “ SFOX has over 175,000 registered users who have collectively
Authorized – DOJ, undertaken more than $12 billion in transactions since
2015. Based on its recent experiences with cryptocurrencies,
9/22/22 the IRS has strong reason to believe that many virtual
currency transactions are not being properly reported on tax
returns. Among other reasons, there is no third-party
https://www.justice.gov/usao- reporting to the IRS in connection with such transactions, and
sdny/pr/irs-obtains-court-order- summonses served on other cryptocurrency dealers have
authorizing-summons-records-relating-
revealed significant underreporting of such
us-taxpayers-who-failed
transactions. Further, IRS investigations have identified at
least ten U.S. taxpayers who used SFOX’s services for
cryptocurrency transactions but failed to report those
transactions to the IRS as required by law.”
135
135
DOJ press release with details of investigation involving FBI,

Agencies Charge •
SEC and DOJ’s National Cryptocurrency Enforcement Team,
Insider Trading 7/21/22
• https://www.justice.gov/usao-sdny/pr/three-charged-first-ever-cryptocurrency-insider-trading-
on Crypto
tipping-scheme
• Indictment of 3 individuals for insider trading on

Exchange and Coinbase exchange, 22 pages
• https://www.justice.gov/usao-sdny/press-release/file/1521186/download
Says Some Assets • SEC Complaint - SEC v Wahi, et al, No. 2:22-cv-01009 (WD WA,
filed 7/21/22); 62 pages
are Securities – • 3 defendants purchased crypto assets right before
DOJ Press Coinbase planned to announce they were trading on their
exchange
Release 7/21/22 • “traded ahead of – sometimes just minutes before –
more than 10 such announcements, trading in at least
25 crypto assets. As alleged in this Complaint, this
repeated pattern … included trading in at least nine
crypto asset securities” [emphasis added]
• https://www.sec.gov/litigation/complaints/2022/comp-pr2022-127.pdf
136
136
Diligence
“A digital token or crypto asset is a crypto asset security if it

Insider Trading •
meets the definition of a security, which the Securities Act
Case and defines to include “investment contract,” i.e., if it constitutes
an investment of money, in a common enterprise, with a
“Securities” reasonable expectation of profit derived from the efforts of
others.”
• SEC complaint, page 8 -
https://www.sec.gov/litigation/complaints/2022/comp-
pr2022-127.pdf
• Coinbase disagrees with “security” label.

• 7/21/22 blog post – “Coinbase does not list securities. End
of story.”
• Notes Coinbase filed petition for rule making with SEC
on 7/21 to avoid “regulation by enforcement.”
• https://blog.coinbase.com/coinbase-does-not-list-securities-end-of-story-
e58dc873be79
137
137
Insider Trading • Coinbase disagrees with “security” label - continued

• 7/21/22 blog post – “The Crypto Securities Market is Waiting to be
Case and Unlocked. But First We Need Workable Rules.”
• https://blog.coinbase.com/the-crypto-securities-market-is-waiting-to-be-
“Securities” - •
unlocked-but-first-we-need-workable-rules-c0ba63eabab3
Files petition with SEC (32 pages); includes: “The U.S. does not
continued currently have a functioning market in digital asset securities due to
the lack of a clear and workable regulatory regime. Digital assets that
trade today overwhelmingly have the characteristics of commodities.
Coinbase, like many other exchanges, has intentionally and
conscientiously steered well clear of securities to ensure that we are
able to operate in full compliance with applicable laws and
regulations. However, new rules facilitating the use of digital asset
securities would allow for a more efficient and effective allocation of
capital in financial markets and create new opportunities for
investors.”
• https://assets.ctfassets.net/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpndWQm/78f95afa4f0eba
aefb303e1a4f172d03/Coinbase_petition_for_SEC_rulemaking.pdf
• Observation: If some crypto assets traded on exchanges are

securities, likely subject to wash sale rule and other tax rules
on “securities.”
138
138
Diligence
Executive Order on Ensuring Responsible Development of Digital Assets

President Biden
•
• 10 pages in Federal Register
Executive Order •
•
No mention of tax
Concerns on protecting consumers and businesses
on Digital Assets, • Lays out policy on Central Bank Digital Currencies (CBDC)
3/9/22
• Within 180 days expects report on “ technical evaluation of the
technological infrastructure, capacity, and expertise that would be
necessary at relevant agencies to facilitate and support the
introduction of a CBDC system should one be proposed.”
• Within 180 days, expects report on “future of money and payment
systems, including the conditions that drive broad adoption of digital
assets; the extent to which technological innovation may influence these
outcomes; and the implications for the United States financial system,
the modernization of and changes to payment systems, economic growth,
financial inclusion, and national security.”
https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-
ensuring-responsible-development-of-digital-assets/
https://www.govinfo.gov/content/pkg/FR-2022-03-14/pdf/2022-05471.pdf
Fact Sheet: https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/09/fact-sheet-
president-biden-to-sign-executive-order-on-ensuring-responsible-innovation-in-digital-assets/
Treasury response: https://home.treasury.gov/news/press-releases/jy0644
139
139
• 16% of Americans have purchased digital assets

White House • Market capitalization of $3 trillion globally (Nov 2021)
Releases • “Digital assets present potential opportunities to reinforce U.S.
leadership in the global financial system and remain at the
Comprehensive technological frontier.” But also pose risks.
• May 2022 crash of a stablecoin and “wage of insolvencies wiped
Framework for out over $600 billion of investor and consumer funds.”
• WH has rec’d 9 reports from agencies per earlier call for them
Responsible • “The digital economy should work for all Americans. That means
developing financial services that are secure, reliable, affordable, and
Development of accessible to all. To make payments more efficient, the Federal
Reserve has planned the 2023 launch of FedNow—an instantaneous,
Digital Assets 24/7 interbank clearing system that will further advance nationwide
infrastructure for instant payments alongside The Clearinghouse’s
(9/16/22) Real Time Payments system. Some digital assets could help facilitate
faster payments and make financial services more accessible, but
more work is needed to ensure they truly benefit underserved
consumers and do not lead to predatory financial practices.”
140
140
Diligence
Steps Administration plans to take include:

White House •
• Encourage adoption of instant payment systems
Comprehensive • Consider creating a federal framework to regulate nonbank
payment providers
Framework for • Work to align global payment practices, regs, and supervision
protocols “while exploring new multilateral platforms”
Responsible • NSF to support research “in technical and socio-technical
disciplines and behavioral economics to ensure that digital asset
Development of ecosystems are designed to be usable, inclusive, equitable, and
accessible by all.”
Digital Assets • Support “responsible innovation”
(9/16/22) - more • Fight “illicit finance”

• Explore a US Central Bank Digital Currency (CBDC)
https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/16/fact-
sheet-white-house-releases-first-ever-comprehensive-framework-for-responsible-
development-of-digital-assets/
• 3/9/22 Exec Order 14067 on Ensuring Responsible Development of
Digital Assets
• https://www.federalregister.gov/documents/2022/03/14/2022-05471/ensuring-
responsible-development-of-digital-assets
141
141
Treasury Issues 3 • 9/16/22 Treasury press release – 3 reports

Reports Tied to • Section 4: The Future of Money and Payments
Section 5: Implications for Consumers, Investors, and
Exec Order 14067 Businesses
(3/9/22) (9/16/22) Section 7: Action Plan to Address Illicit Financing
Risks of Digital Assets
https://home.treasury.gov/news/press-releases/jy0956
142
142
Diligence
Broker Reporting of • Modifications to §§6045, 6056A, 6724 (penalties)

Digital Assets + §6050I & 6050I
Reporting • Effective for returns required to be filed and
statements required to be furnished after
12/31/23 (for 2023 forms and activity due early
Change made by 2024)
Infrastructure • Track changes for modified Code sections +
Investment & Jobs Act background info:
of 2021 http://21stcenturytaxation.blogspot.com/2021/11/digital-asset-
reporting-in-hr-3684.html
• Highlights -------→
143
143
Info Reporting for

Brokers and
Digital Assets -
Modification at
§6045(c) & (g)(3)
144
144
Diligence
§6045A Information • §6045A requires broker to report basis and other

info within 15 days if broker transferring securities
required in subject to basis reporting transfers those
connection with securities to receiving broker, at request of client.
transfers of covered • Enables receiving broker to have basis info
securities to needed so it can comply with §6045 (1099-B
reporting)
brokers • IIJA 2021 adds §6045A(d) to require broker to
report info to IRS (per IRS guidance) if transfer
digital assets to customer.
145
145
Info Reporting for

Brokers and
Digital Assets -
Modification at
§6050I(a)
146
146
Diligence
Review Questions 5 - 8
147
147
4. IRS Practice
& Procedure
Highlights
148
148
Diligence
4 key goals:
IRS Releases •
1. “Service – Provide quality and accessible services to
Strategic Plan enhance the taxpayer experience.
2. Enforcement – Enforce the tax law fairly and efficiently to
FY2022-2026 – IR- increase voluntary compliance and narrow the tax gap.
2022-142 3. People – Foster an inclusive, diverse and well-equipped
workforce and strengthen relationships with our external
(7/20/22) [26 partners.
4. Transformation – Transform IRS operations to become
pages long] more resilient, agile and responsive to improve the
taxpayer experience and narrow the tax gap.”
• Comm’r Rettig: “The IRS remains dedicated to improving
service to taxpayers, maintaining the integrity of our tax
system, empowering our workforce, supporting our partners
and modernizing our systems.”
• https://www.irs.gov/newsroom/new-irs-strategic-plan-agency-issues-five-year-plan-
with-goal-to-help-taxpayers
• https://www.irs.gov/about-irs/irs-strategic-plan
149
149
IRS Strategic Plan Overview
150
150
Diligence
IRS Strategic Plan – Select Data
151
151
IRS Creates • “part of a longer-term effort to improve taxpayer

service”
Taxpayer • Will focus on compliance and other programs and
Experience Office work with all IRS business units + coordinate with
TAS
– IR-2022-50 • Per Taxpayer First Act report to Congress, January
(3/4/22) 2021
• “will identify changing taxpayer expectations and
industry trends, focus on customer service best
practices, and promote a consistent voice and
experience across all taxpayer segments by
developing agency-wide taxpayer experience
guidelines and expectations.”
• https://www.irs.gov/newsroom/taxpayer-experience-office-formally-
established-to-improve-service-across-the-irs
152
152
Diligence
• IRS “has begun using voice and chat bots on two of its
IRS Voice and specialized toll-free telephone assistance lines and
Chat Bot Tools to IRS.gov, enabling taxpayers with simple payment or
collection notice questions to get what they need
Help Taxpayers – quickly and avoid waiting.”
IR-2022-56 • But can still use IRS phone lines.
(3/10/22) • English and Spanish.
• “Later in 2022, IRS voice bots will also enable taxpayers
to authenticate their identity to establish payment
plans, request a transcript and obtain information about
their accounts, such as payoff details. The IRS plans to
roll out more voice and chat bots later in 2022 to assist
taxpayers with more complex issues.”
• https://www.irs.gov/newsroom/irs-unveils-voice-and-chat-bots-to-assist-
taxpayers-with-simple-collection-questions-and-tasks-provides-faster-
service-reduced-wait-times
153
153
Twitter
Follow IRS on •
• Facebook
Social Media – • Instagram
LinkedIn
IRS Tax Tip 2022- •
• Mobile app – IRS2Go
108 (7/18/22) • Or subscribe to various
news feeds – info releases
(IR), tax tips, more
https://www.irs.gov/newsroom/taxpayers-
can-stay-in-the-know-by-following-irs-social-
media-and-subscribing-to-e-news
154
154
Diligence
IRS Information https://www.irs.gov/help/languages
in Other
Languages
155
155
IRS Updates Pub • Includes “helpful hints” to prepare and submit

Form 2848, recent changes, and common reasons
4245 on POA for rejection
Guide (Feb 2022) • 2 pages of small print
• https://www.irs.gov/pub/irs-pdf/p4245.pdf
156
156
Diligence
IRS Updates FBAR Pub 5569, Report of

Foreign Bank &
Guide (March Financial Accounts
2022) (FBAR) Reference
Guide
• 15 pages
• https://www.irs.gov/pub/irs-
pdf/p5569.pdf
157
157
Written Information Security Plan (WISP)

Summit Releases •
• 29-page outline from Security Summit
New Data • To help tax pros create the data security plan they are required
to have (part of Gramm-Leach-Bliley Act’s Safeguards Rule)
Security Plan to • “A security plan should be appropriate to the company's size, scope
of activities, complexity and the sensitivity of the customer data it
Help Tax Pros – handles. There is no one-size-fits-all WISP. For example, a sole
practitioner can use a more abbreviated and simplified plan than a
IR-2022-147 10-partner accounting firm, which is reflected in the new sample
WISP from the Security Summit group.
(8/9/22) • Once completed, tax professionals should keep their WISP in a
format that others can easily read, such as PDF or Word. Making the
WISP available to employees for training purposes is encouraged.
Storing a copy offsite or in the cloud is a recommended best practice
in the event of a natural disaster.”
https://www.irs.gov/newsroom/security-summit-releases-new-data-security-
plan-to-help-tax-professionals-new-wisp-simplifies-complex-area
158
158
Diligence
Written • Creating a Written Information Security Plan for

your Tax & Accounting Practice, 8/2/22
Information
Security Plan
(WISP) – Table of
Contents
159
159
Written • Continued …
Information
Security Plan
(WISP) – Table of
Contents
160
160
Diligence
WISP – Suggested
Outline for Tax
Pro’s Data
Security Plan
161
161
S sought damages of $3,402 from his employer DoD for alleged

Taxpayer Claim of •
incorrect tax advice.
Erroneous Info • S had 4 work-related tax moves with reimbursement and
explanation from DoD; 1 move was after TCJA.
From DOD Not • DoD gave same tax info for all moves. Did not update for
Valid – Schneiter, TCJA change.
• Ct denies – “court is not unsympathetic to plaintiff’s grievance,
No. 21-1876C (Fed but, for the reasons explained below, his claims are either
beyond the subject-matter jurisdiction of the United States
Cls, 4/7/22) Court of Federal Claims (“Court of Federal Claims”) or fail to
state a claim upon which relief can be granted.”
• S raised various legal theories including tort and fiduciary
claims.
• Court – DoD had no obligation “to provide accurate tax
information”
• https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2021cv1876-30-0
162
162
Diligence
Penalty Relief for • For certain FTF and certain int’l info return (IIR)
and/or certain info return penalties for
Certain Taxpayers • Tax returns (generally 1040s and 1120s) for tax
Filing Returns for years 2019 and 2020 filed ON OR BEFORE 9/30/22
• Certain information returns filed:
Tax Years 2019
• 2019 returns filed ON OR BEFORE 8/1/20.
and 2020 – Notice • 2020 returns filed ON OR BEFORE 8/1/21.
2022-36 (8/24/22) • “The relevant penalties will be waived or, to the
extent previously assessed, abated, refunded, or
credited, as described in section 3.A of this notice.
Situations where penalty relief does not apply are
described in section 3.B of this notice.”
163
163
Section 3. Grant of Relief

Notice 2022-36
•
• A. Waiver and Abatement of Certain Penalties for Taxpayers
(8/24/22) - more 1) Additions to tax under section 6651(a)(1) for failure to file the
following income tax returns – 1040 and its variations, 1041, 1041-N,
1041-QFT, 1120 and its variations, 1066, 990-PF, 990-T.
2) Certain penalties under sections 6038, 6038A, 6038C, 6039F and 6677
for failure to timely file specified IIRs.
3) Penalties under §6698(a)(1) for failure to timely file and under
§6698(a)(2) for failure to show required info on Form 1065.
4) Penalties under §6699(a)(1) for failure to timely file and under
§6699(a)(2) for failure to show required info on Form 1120-S.
• B. Exceptions … [see Notice 2022-36]
https://www.irs.gov/pub/irs-drop/n-22-36.pdf
NTA post 8/24/22 - https://www.taxpayeradvocate.irs.gov/news/nta-blog-the-
irs-is-automatically-providing-late-filing-penalty-relief-for-both-2019-and-2020-
tax-returns/
COVID Tax Tip 2022-139 (9/12/22) - https://www.irs.gov/newsroom/1-point-2-
billion-dollars-in-irs-penalty-relief-refunds-coming-for-certain-2019-and-2020-
tax-returns
• IR-2022-163 (9/2/22) - https://www.irs.gov/newsroom/reminder-file-2019-and-2020-
returns-by-sept-30-to-get-covid-penalty-relief
164
164
Diligence
Notice 2022-36 Per IR-2022-155 (8/24/22)

• “Relief is automatic; most of $1.2 billion in refunds
(8/24/22) – how delivered to eligible taxpayers by next month
to get relief … • Penalty relief is automatic. This means that eligible
taxpayers need not apply for it. If already assessed,
penalties will be abated. If already paid, the
taxpayer will receive a credit or refund.
• As a result, nearly 1.6 million taxpayers who already
paid the penalty are receiving refunds totaling
more than $1.2 billion. Most eligible taxpayers will
receive their refunds by the end of September.”
• https://www.irs.gov/newsroom/covid-tax-relief-irs-provides-broad-based-penalty-relief-
for-certain-2019-and-2020-returns-due-to-the-pandemic-1-point-2-billion-in-penalties-
being-refunded-to-1-point-6-million-taxpayers
165
165
Notice 2022-36 • Update to IRM 20.1.1.3.3.2.2 – includes:

• “NOTE: When causing a refund to generate, the
(8/24/22) - overpayment is NOT subject to the overpayment
Observations interest provision of IRC 6611(e)(3). See IRM
20.2.4.7.5.5, 45-Day Rule and IRS Initiated
Adjustments.”
• https://www.irs.gov/pub/foia/ig/sbse/sbse-20-0822-0912.pdf
• What is not included:

• Form 8938 (IRC §6038D)
• Has separate FTF penalty structure of $10,000
• Statute of limitations for entire return may remain
open until 3 years after form filed.
• FBAR
• Others
• FTP penalties
166
166
Diligence
2016 – L moved from DC to FL

1099-R Mailed to •
• 2017 – rec’d 1099-R from Fidelity for $60K at FL address and
Old Address is gave to preparer
• Also rec’d 1099-R from National for $238K at DC address;
Still Taxable IRA not given to preparer; not reported.
Distribution – No • IRS sent CP2000 notice for missing $238K income; L did
not respond; IRS sent notice of deficiency
Penalty Waiver – • L “professionally engaged” in over 10 p/s and had to file in
over 5 states
Larochelle, TC • 2020 – L paid tax; challenges penalty under §6662
Summary Opinion • Seek reasonable cause waiver – do not remember
receiving $238K 1099-R
2022-12 (7/12/22) • Court: “Nonreceipt of tax information forms, such as a
Form W–2, Wage and Tax Statement, or a Form 1099, does
not excuse a taxpayer from his or her duty to report the
income.”
167
167
Larochelle – • L “is a sophisticated businessperson who during

2017 was the general manager of a real estate
Reasonable partnership, was involved in more than ten other
Cause Not Shown partnerships, and was responsible for
recordkeeping for those partnerships. Therefore,
Mr. LaRochelle was aware of the need to keep
records concerning financial receipts.”
• Preparer never given the National 1099-R
• Can’t have reliance on professional advice if never
gave the info to preparer.
• “Other than handing over most of their documents
to Mr. Lander, petitioners did not appear to actively
participate in the return preparation process.
Further, the record does not show that petitioners
reviewed the completed return before it was filed.”
168
168
Diligence
2017 return filed late; IRS assessed late filing penalties

Reasonable •
• O seeks waiver/refund because preparer failed to e-file for
Cause – extension and then gave incorrect advice on how to file
extension and stop penalties from accruing.
Oosterwijk, No. • Preparer had served O and his business for 24 years. O only
had penalty once for $7 late payment penalty which was
CCB-21-1151 (DC waived under First Time Penalty Abatement policy.
MD, 1/27/22) • 2017 sold business and needed more time to file. P said would
e-file and O needed to have $1.8 million in bank account
• O noticed after 4/15 money was still in account and told P. P
said to wait until 4/30 before contacting IRS.
• P discovered had not e-filed the extension.
• O mailed paper extension and payment on 5/4/18 and e-filed
return on 6/29/18; FTP under 6651(a) of $8,859 + FTF penalty of
$257K
169
169
Don’t qualify for First Time Penalty Abate because used in

Oosterwijk – •
2014
continued • Appeals abated about $137K of the penalty.
• Court:
• No reasonable cause waiver for late filing per Boyle.
• O argues Boyle n/a to e-filing because taxpayer unable to
e-file on own or confirm e-filing transmission. Court
disagrees.
• Taxpayers can still paper file extension (as Os later did) as
we do not have mandatory e-filing.
• “the court is sympathetic to the Oosterwijks, who were not
willfully neglectful but rather appear to have relied on the
advice of a trusted professional, intending to fulfill their
obligations under the tax laws. But neither was the
https://scholar.google.com/scholar government at fault, and indeed the IRS did abate a
_case?case=9758948519525583864&q substantial portion of the penalties assessed.”
=Oosterwijk&hl=en&as_sdt=2003
170
170
Diligence
2013 – 2017, M did not report under §6707A, its employee-

Regulatory •
benefit trust paying premiums on cash-value life insurance
Process Not benefitting owners which Notice 2007-83 is a “listed
transaction.”
Followed – Mann • IRS imposed penalties on M of $10,000 and each s/h ($8,642
and $7,794)
Construction, Inc., • M and 2 s/h paid for 2013 and then sought refunds,
No. 21-1500 (6th “claiming the IRS lacked authority to penalize them”
• District Court held for IRS
Cir., 3/3/22) • M – IRS did not follow “notice-and-comment procedures when
it issued Notice 2007-83”
• IRS explanation:
• Notice is “merely an interpretive rule” not a legislative rule
so no notice and comment needed for it.
• Even if notice is a legislative rule, Congress exempted IRS
from APA’s requirements for these disclosure rules.
171
171
Notice 2007-83 is a legislative rule with force and effect of law –

Mann •
“creates new substantive duties”
Construction, Inc. • Defines set of transactions taxpayers must report where

specifics not otherwise in the statute or any notice-and-
– 6th Circuit comment rule.
• Without the notice, M has no reporting.
holding • IRS reporting requirement involves taxpayer time and
violation leads to penalties on taxpayers.
• Congress did not exempt IRS from APA’s requirements with
§6707A.
• “Exemptions from the terms of the Administrative Procedure
Act are not lightly to be presumed.”
• Statute is silent on procedural process for IRS.
• No basis for arguing that Congressional silence authorizes the
notice (implied ratification).
• “it rarely suffices to show express modification of the
https://www.opn.ca6.us APA’s bedrock procedural guarantees given the raft of
courts.gov/opinions.pdf potential explanations for inaction on Capitol Hill.”
/22a0041p-06.pdf
• Must set aside Notice 2007-83; no penalty for taxpayers.
172
172
Diligence
Question: “Whether a communication involving both legal and non-

USSC Grants Cert •
legal advice is protected by attorney-client privilege where obtaining
or providing legal advice was one of the significant purposes behind
– In Re Grand the communication.”
Jury, 21-1397 • Why to USSC? Split in circuits on “when a communication made for
multiple purposes—some legal and others not—is privileged.”
(10/3/22) • DC Circuit – communication privileged if there is a significant
legal purpose.
• 9th Circuit – courts must weigh all of the purposes of the
communication and it is privileged only if there is a legal purpose
at least as significant as non-legal purposes.
• https://cdn.ca9.uscourts.gov/datastore/opinions/2022/
01/27/21-55085.pdf
• 7th – dual- purpose communications are never privileged
• https://www.supremecourt.gov/orders/courtorders/100322zor_fcgj.p
df
• https://www.supremecourt.gov/docket/docketfiles/html/public/21-
1397.html
173
173
How to determine purpose of dual purpose communications

More on Possible
•
• Per 9th Circuit case In Re Grand Jury (amended 1/27/22)
Tests - In Re
• Primary Purpose Test – Was primary purpose of communication to provide legal
advice or business/tax advice?
• Because Of Test – look at totality of the circumstances as to why document was
Grand Jury, 21- created; used in work product doctrine; n/a here
• District Court rejected application in attorney-client privilege situation
1397 (10/3/22) •
• A Primary Purpose Test – rather than the primary purpose.
9th Circuit – common law approach is to look at purpose of attorney-client privilege – to
protect legal advice
• Privilege and work-product doctrine serve different purposes.
• “we reject Appellants’ invitation to extend the “because of” test to the attorney-
client privilege context, and hold that the “primary purpose” test applies to dual-
purpose communications.”
• Here, “a primary purpose” test likely not a different result. Would only do so in “truly
close cases, like where the legal purpose is just as significant as a non-legal
purpose.”
• Applied in In re Kellogg Brown & Root, Inc, (DC Cir. 2014).
• Here, predominant purpose was not to obtain legal advice.
• No other circuits have adopted a primary purpose test
https://cdn.ca9.uscourts.gov/datastore/opinions/2022/01/27/21-55085.pdf
174
174
Diligence
IRS Interactive • Select questions:
Tool – Is My
Residential
Rental Income
Taxable and/or
Are My Expenses
Deductible?
175
175
IRS Interactive Tool – Is My Residential Rental Income

Taxable and/or Are My Expenses Deductible?
https://www.irs.gov/help/ita/is-my-residential-rental-income-taxable-and-or-are-my-expenses-deductible
176
176
Diligence
Other Interactive • https://www.irs.gov/help/ita
Tools From IRS
177
177
More Interactive • https://www.irs.gov/help/ita
Tools From IRS
178
178
Diligence
And More Interactive Tools From IRS
https://www.irs.gov/help/ita
179
179
First 4 released:
IRS Releases 1. Use of Charitable Remainder Annuity Trust (CRAT) to Eliminate
“Dirty Dozen” List Taxable Gain
2. Maltese (or Other Foreign) Pension Arrangements Misusing Treaty
for 2022 – IR- 3. Puerto Rican and Other Foreign Captive Insurance
4. Monetized Installment Sales
2022-113 (6/1/22)
“The IRS remains committed to having a strong, visible, robust tax
enforcement presence to support voluntary compliance. To combat the
evolving variety of these potentially abusive transactions, the IRS created
the Office of Promoter Investigations (OPI) to coordinate Servicewide
enforcement activities and focus on participants and the promoters of
abusive tax avoidance transactions. The IRS has a variety of means to
find potentially abusive transactions, including examinations, promoter
investigations, whistleblower claims, data analytics and reviewing
marketing materials.”
https://www.irs.gov/newsroom/irs-warns-taxpayers-of-dirty-dozen-tax-scams-for-2022
https://www.irs.gov/newsroom/dirty-dozen
https://www.irs.gov/newsroom/an-overview-of-the-irss-2022-dirty-dozen-tax-scams
180
180
Diligence
IRS Releases 5. Economic Impact Payment and tax refund

scams + other scams including:
“Dirty Dozen” List • Unemployment fraud leading to inaccurate
for 2022 – IR- taxpayer 1099-Gs
• Fake employment offers posted on social
2022-117 (6/6/22) media & filing of fraudulent claims
• Fake charities that steal your money
• Check status of a “charity” with IRS Tax
Exempt Organization Search tool
• https://www.irs.gov/charities-and-
nonprofits
• https://www.irs.gov/newsroom/irs-continues-with-
dirty-dozen-this-week-urging-taxpayers-to-
continue-watching-out-for-pandemic-related-
scams-including-theft-of-benefits-and-bogus-
social-media-posts
181
181
6. OIC Mills
IRS “Dirty Dozen” •
• “make outlandish claims usually in local advertising regarding
List for 2022 – IR- how they can settle a person's tax debt for pennies on the dollar.
The reality usually is that taxpayers pay the OIC mill a fee to get
2022-119 (6/7/22) the same deal they could have gotten on their own by working
directly with the IRS.”
• “These "mills" contort the IRS program into something it's not —
misleading people with no chance of meeting the requirements
while charging excessive fees, often thousands of dollars.”
• IRS Tax Tip 2022-103 (7/7/22)
• https://www.irs.gov/newsroom/companies-who-promise-to-eliminate-tax-debt-sometimes-
leave-taxpayers-high-and-dry
• Taxpayers should check IRS OIC Pre-Qualifier Tool

• https://irs.treasury.gov/oic_pre_qualifier/
• IRS also warns about:
• Ghost preparers
• Inflated refunds offered by unscrupulous tax return preparer
• https://www.irs.gov/newsroom/dirty-dozen-irs-urges-anyone-having-trouble-paying-
their-taxes-to-avoid-anyone-claiming-they-can-settle-tax-debt-for-pennies-on-the-
dollar-known-as-oic-mills
182
182
Diligence
7. Scams - bogus calls, texts, emails and posts online to gain trust or
IRS Releases “Dirty •
steal
Dozen” List for 2022 – • Text message scams
IR-2022-121 (6/8/22) • “If a taxpayer receives an unsolicited SMS/text that appears
to be from either the IRS or a program closely linked to the
IRS, the taxpayer should take a screenshot of the text
message and include the screenshot in an email
to phishing@irs.gov with the following information:
• Date, time and time zone they received the text message
• Phone number that received the text message
• The IRS reminds everyone NOT to click links or open
attachments in unsolicited, suspicious or unexpected text
messages whether from the IRS, state tax agencies or
others in the tax community.”
• Email phishing scams
• Phone scams
• https://www.irs.gov/newsroom/dirty-dozen-scammers-use-every-trick-in-their-communication-
arsenal-to-steal-your-identity-personal-financial-information-money-and-more
• https://www.irs.gov/newsroom/irs-warning-scammers-work-year-round-stay-vigilant
183
183
IRS Warns of • Increase in “ IRS-themed texting scams aimed at

stealing personal and financial information.”
Smishing • Smishing – MMS/SMS/text scams
Activities – IR- • May be offering COVID relief, tax credits, help
setting up IRS online account
2022-167
• IRS does not send emails or text messages asking
(9/28/22) for personal financial info
• IR includes how to report to IRS.
• https://www.irs.gov/newsroom/irs-reports-significant-increase-in-
texting-scams-warns-taxpayers-to-remain-vigilant
184
184
Diligence
IRS Instructions for Dealing with Identity Theft – IR-2022-78

84/11/22) and FS 2022-25 (April 2022)
IR-2022-78 – how to:
Request an IP-PIN
Handle tax-related ID theft
When to file an ID theft affidavit (Form 14039)
https://www.irs.gov/newsroom/identity-stolen-request-an-identity-protection-pin-from-the-irs
Fact Sheet 2022-25

When to file an Identify Theft Affidavit
“Tax-related identity theft occurs when someone uses a taxpayer's stolen Social Security number (SSN) to
file a tax return claiming a fraudulent refund.”
Provides list of signs of possible tax-related ID theft
https://www.irs.gov/newsroom/when-to-file-an-identity-theft-affidavit
185
185
• 8. Spear Phishing
IRS Releases
• “can be tailored to attack and steal the computer
“Dirty Dozen” List system credentials of any small business with a client
for 2022 – IR- data base, such as tax professionals' firms”
• “The latest phishing email uses the IRS logo and a
2022-122 (6/9/22) variety of subject lines such as "Action Required: Your
account has now been put on hold." The IRS has
observed similar bogus emails that claim to be from
a "tax preparation application provider." One such
variation offers an "unusual activity report" and a
solution link for the recipient to restore their
account.
• Emails claiming "Your account has been put on hold"
are scams.”
https://www.irs.gov/newsroom/dirty-dozen-irs-security-summit-reiterate-
recent-warning-to-tax-professionals-and-other-businesses-of-dangerous-
spear-phishing-attacks
186
186
Diligence
Goal – steal account credentials or install malicious software;

IRS Tips to Avoid •
steal client data
Spear Phishing – • “Tax pros can use these tips to help protect client data:
• Use separate personal and business email accounts
Tax Tip 2022-100 • Protect email accounts with strong passwords and two-factor
authentication
(6/30/22) • Install an anti-phishing toolbar to help identify known phishing
sites
• Use security software products with anti-phishing tools
• Use security software to help protect systems from malware and
https://www.irs.gov/newsroom/spear- scan emails for viruses
phishing-targets-tax-pros-and-other- • Never open or download attachments from unknown senders,
businesses including potential clients, request additional information to help
verify their identity or call them to confirm the email is from
them
• Send password-protected and encrypted documents only
• Don’t respond to suspicious or unknown emails; if the phishing
email is IRS-related, save the email as a file, attach that file to an
email, and send to phishing@irs.gov”
187
187
Final 4 items – schemes targeting high-net-worth individuals who

IRS Releases want to avoid paying taxes.
“Dirty Dozen” List 9. Concealing Assets in Offshore Accounts and Improper
for 2022 – IR- Reporting of Digital Assets (such as cryptocurrencies)
• “IRS urges taxpayers to not be misled into believing this
2022-125 storyline about digital assets and possibly exposing
themselves to civil fraud penalties and criminal charges
(6/10/22) that could result from failure to report transactions
involving digital assets.”
10. High-income individuals who don't file tax returns
11. Abusive Syndicated Conservation Easements
12. Abusive Micro-Captive Insurance Arrangements
• Schemes that lack attributes of insurance.
https://www.irs.gov/newsroom/irs-wraps-up-2022-dirty-dozen-
scams-list-agency-urges-taxpayers-to-watch-out-for-tax-avoidance-
strategies
188
188
Diligence
Items Senator 1. “Wyden Investigation Uncovers Major Loophole In

Offshore Account Reporting,” 8/24/22 press release
Wyden Would • “Shell bank loophole” in FATCA “ that allows banks
Likely Add to offshore to accept funds from U.S. persons without
reporting them to the IRS.”
Dirty Dozen • Used by Robert Brockman “to evade taxes on over $2
billion in income.”
2. “Wyden Launches Investigation Into Private Placement

Life Insurance Schemes”, 8/15/22 press release
• Senator Wyden “concerned that these insurance
vehicles are being used without a genuine insurance
purpose to invest in hedge funds and other
investments while avoiding billions of dollars in
federal taxes.”
189
189
5. Changes for
2022 IRS Tax
Forms
Draft Tax Forms
190
190
Diligence
Form 1040 (draft 7/27/22) more details for line 1 income:

Select Draft IRS •
• 2021: 1 Wages, salaries, tips, etc. Attach Form(s) W-2
Tax Forms for • 2022:
2022
See change to virtual currency question on earlier slides.

Schedules 2 and 3 same as in 2021.
Schedule 1 minor change in listing of other income.
Most draft forms do not yet have draft instructions.
Draft Form 8865 Schedule K-2 (7/21/22) - https://www.irs.gov/pub/irs-

dft/f8865sk2--dft.pdf
Draft Form 8865 Schedule K-3 (7/21/22) - https://www.irs.gov/pub/irs-
dft/f8865sk3--dft.pdf
191
191
American Rescue Plan Act change to §6050W

New 1099-K Rules •
• Third Party Settlement Organization de minimis filing threshold
for 2022 changed to require reporting if payments processed exceed $600
for 2022 and are for goods or services.
• For commercial transactions.
• FAQs - https://www.irs.gov/payments/general-faqs-on-new-
payment-card-reporting-requirements
• https://www.irs.gov/forms-pubs/about-form-1099-k
• JCT: https://www.jct.gov/publications/2021/technical-
explanation-of-section-9674-of-hr-1319/
• Penalty for failure to furnish (§6722) or failure to file (§6721) 1099-K is
$290 each for maximum of $3,532,500 penalty.
• Penalties are reduced if corrected within 30 days.
• Rev. Proc. 2021-45
• https://www.irs.gov/payments/information-return-penalties
• Observation: Users of PayPal and similar should check account status
to be sure properly set up (business v personal).
192
192
Diligence
Form 1099-K Draft Instructions (9/2/22)

What’s New – new de minimis threshold for Third Party Settlement
Organizations
“A TPSO is required to report any information concerning third party network transactions of any
participating payee only if the gross amount of total reportable payment transactions exceeds
$600 for the calendar year, regardless of the number of transactions. For examples of reportable
payment transactions, including responsible filing parties, see Regulations section 1.6050W-1(e).”
https://www.irs.gov/pub/irs-dft/i1099k--dft.pdf
https://www.irs.gov/businesses/understanding-your-form-1099-k
193
193
Reg. 1.6041-1(a)(1)(iv) … “Transactions that are described in

1099-K Reminder •
paragraph (a)(1)(ii) of this section that otherwise would be
– Longstanding subject to reporting under both sections 6041 and 6050W are
reported under section 6050W and not section 6041. For
“Tiebreaker” Rule provisions relating to information reporting for payment card
and third party network transactions, see §1.6050W–1. Solely
for §6041 and for purposes of this paragraph, the de minimis threshold for
third party network transactions in §1.6050W– 1(c)(4) is
§6050W disregarded in determining whether the transaction is subject
to reporting under section 6050W.”
• Allowed per §6050W(g) giving IRS authority to issue regs including to
prevent reporting of same transaction more than once.
• Example from reg: Restaurant owner A pays $600 to repair

person using credit card.
R does not need to issue 1099-NEC because credit card
processor required to issue 1099-K.
• Another example changes credit card to TPSO and still no 1099-NEC
required under §6041 because reg says de minimis rule of §6050W is
ignored.
194
194
Diligence
Instructions to https://www.irs.gov/pub/irs-dft/i8606--dft.pdf
Form 8606,
Nondeductible
IRAs (9/27/22)
195
195
6. Expired and
Expiring
Provisions
196
196
Diligence
Expiring Provisions – End of 2021
https://www.jct.gov/publications/2022/jcx-12-22/ Extended, modified by IRA 2022

197
197
Expiring Provisions – End of 2021 - more
9/30/21
(other than for recovery
startup business
(12/31/21)
https://www.jct.gov/publications/2022/jcx-12-22/
198
198
Diligence
Note: JCT list does not include changes to

Expiring
•
§174 by TCJA effective for tyba 12/31/21. Per
the January 2021 JCT report on expiring
Provisions – End
provisions (footnote 2): That change is not
considered an expiration – “, taxpayers
may currently elect under section 174 to
of 2021 – and deduct research or experimental

expenditures that are paid or incurred
during the taxable year in connection with
more a trade or business. Section 13206 of

Public Law 115-97, enacted on December
22, 2017, amends section 174 by requiring
that such expenditures, including
expenditures for software development,
instead be capitalized and amortized
ratably over a five-year period (a 15-year
period in the case of foreign research).
However, the amendments made to
section 174 by section 13206 of Public Law
115-97 apply only with respect to amounts
paid or incurred in taxable years
beginning after December 31, 2021. This
pamphlet does not record the loss of the
List Of Expiring Federal Tax Provisions 2021-2031, JCX-
1-22, 1/13/22 current-year deduction for qualifying
https://www.jct.gov/publications/2022/jcx-1-22/ expenditures because of the enacted but
deferred amendments as an expiring tax
provision.”
• https://www.jct.gov/publications/2021/jcx
-1-21/
199
199
Expiring
Provisions – End
of 2022
200
200
Diligence
7. Legislative
Proposals to
Watch for in
Balance of 2022
201
201
Legislative 1. Disaster relief

• Example: Pulling funds from IRA w/o 10%
Possibilities penalty
Before 2023
2. Renew provisions that expired 12/31/21 or will
expire 12/31/22, such as
• Above the line charitable donation deduction
• CTC and EITC we had in 2021
3. Retirement Plan Changes - SECURE Act II (House)

and/or EARN Act (Senate)
202
202
Diligence
Will any 1. Higher Child Tax Credit

2. Expanded EITC
provisions of 3. Increase SALT deduction cap and keep in place
House passed beyond 2025
Build Back Better 4. Modifications to wash sale rules for digital assets
and related parties
Resurface? 5. Tax increases for high income individuals including
[H.R. 5376, passed surcharges if AGI over $10 million
in House 6. Extension of statute of limitations for certain
legally married couples
11/19/21] 7. Above the line deduction for union dues and
employee uniforms
You never know!
203
203
8. Planning and
Due Diligence –
Beyond Earlier
Items – Including
From Prior Year
Legislative
Changes
204
204
Diligence
JCT Bluebook for Public Laws covered:

• Taxpayer First Act (PL 116-25)
Tax Legislation of • Fostering Undergraduate Talent by Unlocking Resources
116th Congress, for Education (FUTURE) Act (PL 116-91)
• 1 item on secure disclosure of tax return info
JCS-1-22 (3/8/22) • Further Consolidated Appropriations Act, 2020 (PL 116-94)
• Included the SECURE Act and extension of several
expiring provisions
596 pages • Virginia Beach Strong Act (PL 116-98)
• Families First Coronavirus Response Act (FFCRA) (PL 116-
127)
https://www.jct.gov/publications/2022/j
• CARES Act (PL 116-136)
cs-1-22/
• Continuing Appropriations Act, 2021 and Other Extensions
Act (PL 116-259)
• Consolidated Appropriates Act, 2021 (PL 116-260)
205
205
https://www.irs.gov/newsroom/tax-relief-in-disaster-situations
Disaster Relief •
• NTA Disaster Relief Guidance
Reminders and • https://www.taxpayeradvocate.irs.gov/disaster-relief/
Extended Due • Also check your state – including for relief for
disasters in other states.
Dates
206
206
Diligence
• Distribution was reported over 3 years (2020-2022)

Reminder: unless elected to pick up all in 2020.
Opportunity/Rem • See 2020 Form 8915-E individual should have filed
with 1040.
inder to Client to • May be repaid during 3-year period beginning on day
after date the distribution was received.
Repay 2020 • May require amending 2020 1040 and 2020 8915-E if
“Coronavirus- repay more than 1/3 in 2021 (or reduce 2022
reportable amount). See examples in Notice 2020-50.
Related • Guidance and examples – Notice 2020-50 (6/19/20) ---→
Distribution” of • https://www.irs.gov/pub/irs-drop/n-20-50.pdf
• CARES Act, Sec. 2202
Up to $100,000 • 2021 repayment – use new Form 8915-F, Qualified
Disaster Retirement Plan Distributions and Repayments
over 3 Years • Same for 2022? Probably, it is a “forever” form.
• https://www.irs.gov/pub/irs-dft/f8915f--dft.pdf
• https://www.irs.gov/pub/irs-dft/i8915f--dft.pdf
207
207
Recontribution • Illustrating tax treatment for year of

recontribution of a COVID distribution made to
Example of taxpayer who uses 3-year ratable income
Notice 2020-50 inclusion method.
• 12/1/20 – Dave, qualified individual, takes $75K
distribution from 401(k)
• Uses 3-year ratable income inclusion method
• 2022 – makes a $25K recontribution
Form 1040 Reporting Recontributes $25,000 on:
(return filed by April 15) 4/10/22 8/10/22
2020 $25,000 $25,000
2021 $0 $25,000
2022 $25,000 $0
If had instead reported all in 2020, and
recontribute after filing 2020 return, need to
amend 2020.
208
208
Diligence
Illustrating recontributions of a COVID distribution may be carried

Recontribution •
back or forward when using 3-year ratable income inclusion.
Carry Back or • 11/15/20 – Eunice, qualified individual, takes $90K distribution from
IRA
Forward Example •
•
Uses 3-year ratable income inclusion method
11/10/21 – makes a $40K recontribution (after filing 2020 return)
of Notice 2020-50 • Be sure to keep records of how reported so don’t report too much
or too little. Report recontribution using Form 8915-E (now 8915-F).
Form 1040 Reporting (return Carryforward Carryback

filed by April 15)
2020 $30,000 $30,000 original
$20,000 amended
2021 $0 $0
2022 $20,000 $30,000
209
209
Recontributions • “In general, a qualified individual who receives a

coronavirus-related distribution that is eligible for
Per Notice 2020- tax-free rollover treatment is permitted to
50 recontribute, at any time in a 3-year period, any
portion of the distribution to an eligible retirement
plan that is permitted to accept eligible rollover
contributions.” [p 11; also p 13]
• Ck Notice 2020-50 and CARES Act Sec. 2202 for
details.
• Plan administrator likely also provided some info to
individuals.
• Caution: Is that information complete and did
your client understand it?
• https://www.irs.gov/pub/irs-drop/n-20-50.pdf
210
210
Diligence
• Per Notice 2020-50

Recontribution • “eligible retirement plans generally are not required
Cautions to accept rollover contributions. For example, if a
plan does not accept any rollover contributions, the
plan is not required to change its terms or
procedures to accept recontributions of coronavirus-
related distributions.”
• “only a coronavirus-related distribution that is
eligible for tax-free rollover treatment under § 402(c),
403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) is
permitted to be recontributed to an eligible
retirement plan, and that recontribution will be
treated as having been made in a trustee-to-trustee
transfer to that eligible retirement plan.”
• “Any coronavirus-related distribution (whether from
an employer retirement plan or an IRA) paid to a
qualified individual as a beneficiary of an employee
or IRA owner (other than the surviving spouse of the
employee or IRA owner) cannot be recontributed.”
211
211
CP256V Notice - • For 2021, also sent to employers who deferred

employee FICA per Notice 2020-65 and Notice
Self-Employed 2021-11.
and Employers • https://www.irs.gov/individuals/understanding-your-cp256v-notice
Who Deferred
Should Get One
212
212
Diligence
CARES Act Sec. 2302(a)(2) “conditions the deferral of deposits

PMTA 2021-07 •
on the deposit of all deferred amounts by the applicable
(6/21/21) installment due dates. Specifically, the deferral of the
deposits is valid provided “all such deposits are made not
later than the applicable date.” If any portion of the deposit is
not made by the applicable date, whether December 31, 2021,
as to the first installment, or December 31, 2022, as to the
second installment, then the deferral is completely invalid. In
that event, the deposits were due on the usual deposit due
dates provided in Regs. §§ 31.6302-1 and 31.6302-2, which
would be the due dates used in determining any penalties
under section 6656.”
• If payments not timely made, penalty applies to the entire deferred
amount, even if 12/31/21 timely but 12/31/22 is late.
• Basically, the entire deferral is invalidated
• Penalty under §6656(b) increases as time goes
on. https://www.irs.gov/pub/lanoa/pmta-2021-07.pdf
213
213
Interesting footnote 2:
PMTA 2021-07 •
• “December 31, 2021 is New Year’s Day holiday in the District
(6/21/21) of Columbia. January 1, 2022 is a Saturday and January 2,
2022 is a Sunday. Thus, under section 7503, an employer
may deposit and pay the first installment of its deferred
employment taxes on January 3, 2022 and be considered
timely.
• “Similarly, December 31, 2022 is a Saturday, January 1, 2023
is a Sunday, and January 2, 2023 is the New Year’s Day
holiday in the District of Columbia. Again, under section
7503, an employer may deposit and pay the second
installment of its deferred employment taxes by January 3,
2023 and be considered timely.”
• Not noted in other IRS docs or websites!

https://www.irs.gov/pub/lanoa/pmta-2021-07.pdf
214
214
Diligence
Add’l resources • IRS FAQs

• #18 & 20
on deferred 6.2 • https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-
payments-through-december-31-2020
payroll/SE tax • IRM Procedural Update (11/18/21)
owed 12/31/21 • Appears to be aimed at employees processing
the payments
and 12/31/22
• Meaning of:
https://www.irs.gov/pub/foia/ig/sbse/sbse-05-1121-1275.pdf
215
215
Is COVID-19 Still a • Apparently yes:
Federally-
Declared
Disaster?
https://aspr.hhs.gov/legal/PHE/Pages/covid19-15jul2022.aspx
https://aspr.hhs.gov/legal/PHE/Pages/default.aspx
216
216
Diligence
Code provisions dealing with Federally-declared disaster:

Relevance of
•
• §139 General rule – individuals may exclude “qualified disaster relief payments”
COVID-19 as a
• Paid to or for the benefit of an individual:
1. to reimburse or pay reasonable and necessary personal, family, living,
or funeral expenses incurred as a result of a qualified disaster,
Federally- 2. to reimburse or pay reasonable and necessary expenses incurred for
repair or rehabilitation of a personal residence or repair or
Declared Disaster replacement of its contents to extent need for such repair,
rehabilitation, or replacement is attributable to a qualified disaster,
3. by a person engaged in furnishing or sale of transportation as a
common carrier by reason of the death or personal physical injuries
incurred as a result of a qualified disaster, or
4. if such amount is paid by a Federal, State, or local government, or
agency or instrumentality thereof, in connection with a qualified
disaster in order to promote the general welfare,
but only to the extent any expense compensated by such payment is
not otherwise compensated for by insurance or otherwise.
• See next slide
• §165(i) – loss occurring in a federally declared disaster area may, at taxpayer
election, be taken into account in preceding tax year from when disaster occurred.
• Query: What eligible losses occur(red) during Covid disaster?
217
217
Helping • Disaster relief payments under IRC §139

• Note: There are no regs. But see:
Employees w/ • JCT explanation of enacting legislation (PL 107-134 (1/23/02)) -
https://www.jct.gov/publications/2001/jcx-93-01/
§139 • JCT explanation of change made by 109-7 (4/15/05)
• Rev. Rul. 2003-12 https://www.irs.gov/pub/irs-drop/rr-03-12.pdf
• Notice 2002-76 - https://www.irs.gov/pub/irs-drop/n-02-76.pdf
• Possible items that may fall under this income

exclusion rule:
• Technology for home use (work or family needs),
resources for school-age children of employees (tech
and software for learning), household supplies to help
with the pandemic and shelter-in-place orders.
• Must be for expenses “incurred as a result of a qualified
disaster”.
• But NOT wages.
218
218
Diligence
1. Does client have multiple homes and homestead

Some Reminders exemptions?
and Lessons from • Campbell v. Michigan Dept. of Treasury, No. 161254 (MI S.Ct.,
6/9/22) – Michigan discovered had for homes in MI and AZ
State Tax Actions • Domicile issues + likely only entitled to one
2. Is client working remotely from more than one state.
3. Sourcing for income, gains, other for sole proprietors,
partners, S Corp s/h, see, for example:
• The 2009 Metropoulos Family Trust et al v. FTB; D078790 (Super. Ct.
No. 37-2020-00011877-CU-MC-CTL, 5/27/22)
• California OTA rulings such as Bindley - https://ota.ca.gov/wp-
content/uploads/sites/54/2019/08/18032402_Bindley_Decision_OTA_053019.pdf
4. Proper treatment of grants related to COVID.

5. PTE Taxes – check how interacts on state return in relation to
other state tax credit, non-resident withholding, carryforward
period, etc.
219
219
Review Questions 9 -12
220
220
Diligence
Thank you
221
221
Final Exam
222
222

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2022 Individual Planning and Due

2022 Individual Planning and Due Diligence

The sidebar shows an outline of each slide and review

You will see controls at the bottom of the screen for

Professor Annette Nellen, CPA,

Learning • Identify key tax developments from Congress, the

Topics Covered • How the Inflation Reduction Act affects compliance

Agenda 1. Inflation Reduction Act of 2022

• Where does it fit in the law?

tax rules from •

New $80 Billion Funding for IRS Operations over 10

“Specifically, I direct that any additional resources—including any

“For TY 2020 individual income tax returns processed

IRS Personnel • About 52,000 of 83,000 employees are eligible to

GAO, Tax • Individuals with income below $25K or above

Audit Rates and “IRS officials

“Before the IRS moves forward in improving its overall

8/15/22 - Suggests IRS include following in their plan due in Feb

s to IRS for $80

Health Savings • Included in Subtitle B of IRA 2022 —Prescription

• See text of (G) on next slide ----→

HSA Change for

Extension of • §36B(b)(3)(A)(iii) and §36B(c)(1)(E)

Name changed from Nonbusiness Energy Property to Energy

§25C, Energy • Changes include allowing credit for second home

• Name changed from Residential Energy Efficient

Greatly revised IRC 30D

• Name changed from New Qualified Plug-In Electric Drive

13401] • Must be made by a “qualified manufacturer.”

§30D, Clean • Treasury and IRS guidance released 8/16/22:

• §30D(f)(11) Manufacturer’s Suggested Retail Price

§30D – “Foreign • §30D(d)(7) – part of definition - “new clean vehicle”

What can/should tax advisers tell clients?

Credit for • §25E(b) MAGI limitations

[SEC. 13402] • Observation: These are cliffs rather than phaseouts,

• §25E(c)(3) QUALIFIED BUYER =

• Credit transfer rules similar to §30D(g) apply.

• Text near end of this document:

White House Info • Questions

Provision at Thus, remains in the tax law through 2028.

Taxpayers [SEC. years.

• PTC if no employer-provided affordable coverage and

• Energy credits for individuals

• Numerous reg projects for IRS!

IRS Seeks • Comments sought by 11/4/22

Crowdsourcing - • Queries: Why no examples or binding guidance?

• Info Letter 2016-36 – general info for taxpayer

• LaMalfa and others requested guidance 1/21/22 and

• 2016 IRS assessed $11K deficiency for unreported

Valentine – • “A retired service member may exclude a portion of

• Observations: Review 1099-R and military payments

Student Loan • Loan forgiveness of:

Student Loan • U.S. Department of Education, 8/24/22

• Legal memo from DOE

Student Loan Relief – Lawsuits Filed Challenging Authority To Forgive

Taxation of • American Rescue Plan Act (P.L. 117-58, 3/11/21)

• Whether by the university or directly to borrower if insured or guaranteed by

• n/a if forgiveness is due to services provided by the student.

…. and §127 in • Observations:

• Notice 2022-01 (12/21/21) – lenders don’t need to issue 1099-C if discharge

• See track changes of §108(f) at

• CAA-21 extended §127 educational assistance exclusion of up to $5,250/year

Tax considerations to ask about: Name, image and likeness

- NCAA v. Alston, • Where earned? Student’s