Federal Tax Update - Dec. 2, 2013

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Lynn Nichols from Nichols Patrick CPE delivers the weekly podcast on federal tax issues.  For all of your CPE needs, please go to www.ficpa.org/cpe.  This week’s podcast covers the following topics:


  1. Second Circuit Affirms Couple's Liability for Deficiency, Penalty
    (Thomas S. Gluckman et ux. V. Commissioner; CA 2; No. 13-761; 11/11/2013)
    The Second Circuit, in an unpublished per curiam opinion, affirmed a Tax Court decision that sustained an IRS deficiency determination and accuracy-related penalty against a couple based on their failure to report as income the value of life insurance policies that were held by a section 419 welfare benefit plan.

    Value of Insurance Polices Included in Couple's Income; Penalty Upheld
    (Thomas S. Gluckman et ux. v. Commissioner; T.C. Memo. 2012-329; 11/28/2012)
    The Tax Court, sustaining an accuracy-related penalty, held that section 402(b)(1) required a couple who were the majority shareholders of the corporation that employed them to include as income the value of two cash value insurance policies that were held by a purported section 419 welfare benefit plan that the corporation terminated.
  2. Professional Employer Organization Not Entitled to FICA Tax Tip Credit
    (TAM 201347020; 11/22/2013)
    In partially redacted technical advice, the IRS determined that a professional employer organization wasn't entitled to claim the section 45B credit for FICA tax paid on tips received by its clients' employees in connection with the providing, delivering, or serving of food or beverages for consumption.
  3. Individual Granted Extension to Elect Foreign Earned Income Exclusion
    (LTR 201347016; 11/22/2013)
    The IRS has granted an individual an extension to elect the foreign earned income exclusion under section 911 for a certain tax year.
  4. Compensatory Damages, Including Lost Wages, Are Excludable From Gross Income
    (ECC 201346010; 11/15/2013)
    In e-mailed advice, the IRS explained that once it has been determined that a damage award was received on account of personal physical injury or sickness, all compensatory damages, including lost wages, will be excludable from gross income under section 104(a)(2).
  5. Court Holds Ministers' Housing Allowance Exemption Is Unconstitutional
    (Freedom From Religion Foundation Inc. et al. v. Jacob Lew et al.; No. 3:11-cv-00626; 11/22/2013)
    A U.S. district court held that section 107(2), which excludes the rental allowance paid to a minister from gross income, is an unconstitutional violation of the establishment clause and enjoined its enforcement, finding that it provides a benefit to religious persons that it does not provide to others.
  6. Individual Can't Deduct Health Insurance Payments Made to Former Wife
    (James Alton Tucker v. Commissioner; T.C. Summ. Op. 2013-94; 11/25/2013)
    The Tax Court, in a summary opinion, held that health insurance premium payments an individual made to his former wife were not alimony and not deductible by the individual; the court rejected as meritless his argument that a trial court lacks authority to characterize such payments as nondeductible and excludable from income.
  7. Final Regs on Net Investment Income Tax
    (T.D. 9644; 11/26/2013)
    The IRS has issued final regulations under section 1411 on the 3.8 percent tax on some net investment income of individuals, estates, and trusts that have income above the statutory threshold amounts. The final regs provide guidance on the general application of the tax and the computation of net investment income.

    Proposed Regs on Net Investment Income Tax
    (REG-130843-13; 11/26/2013)
    The IRS has issued proposed regulations providing guidance on the computation of net investment income for purposes of the tax under section 1411.
  8. Proposed Regs Define Candidate-Related Political Activities for Social Welfare Groups
    (REG-134417-13; 11/26/2013)
    The IRS has issued proposed regulations that provide guidance on political activities related to candidates that don't promote social welfare for purposes of tax-exempt status under section 501(c)(4).
LAST UPDATED 12/2/2013