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Several monkey wrenches were thrown into the 2021 tax season because of the Coronavirus. This included an extra month of filing time for us procrastinators. However, business as usual will resume for 2022 (and 2023) with some new tax developments and a few amendments.
Some new things this year included, such as an Inflation Reduction Act of 2022, Proposed RMD regs, gift regs, some court decisions, and IRS pronouncements that had an impact on the tax landscape.
In this article, we'll look at a few of those changes. Let's start with the main tax developments of 2022 by the IRS.
While most of the provisions of the SECURE Act became effective on January 1, 2020, the proposed RMD regulations are scheduled to become effective on January 1, 2022. According to New Proposed RMD Regulations, taxpayers must apply the existing regulations and interpret the SECURE Act's 10-year rule and increased RMD age "reasonably, in good faith." The proposed RMD regulations guide how plan administrators can meet this requirement.
According to IRS Fact Sheet 2022-20, issuance of a Form 1099-K resulting from a "crowdfunding" website does not automatically result in taxation for the recipient, and factual circumstances must be examined to determine whether the amounts raised are gifts or not.
The proposed regulations explain that 2018-2025 gifts larger than the post-2025 exemption will generally remain nontaxable at death. Still, the same rule does not apply to pre-2026 transfers that are ultimately included in gross estates.
It is now possible to make a late election for estate tax exemption portability up to five (5) years after the death of a spouse under Revenue Procedure 2022-32, which supersedes Revenue Procedure 2017-34. Before this, the two-year window followed the death of the spouse.
As a result of the Inflation Reduction Act of 2022, a historic down payment will be made on deficit reduction that will help fight inflation, invest in domestic energy manufacturing and production, and reduce carbon emissions by 40% by 2030. Here are the key points of IRA 2022:
Notice 2022-36 was released by the Internal Revenue Service (IRS) to provide penalty relief to nearly 1.6 million taxpayers affected by the COVID-19 pandemic when preparing their 2019 and 2020 tax returns (Forms 1040, Form 1041, Form 1120, and Form 990-PF, Form 1120-S and Form 1065, Form 5471 and Form 5472). In addition, late filing penalties assessed on taxpayers' previous year's returns will be refunded or credited automatically to their accounts.
The Internal Revenue Service indicated in Chief Counsel Memorandum 202237010 that businesses that receive a payback on their Paycheck Protection Program loan, even if they don't meet the requirements, are taxed on the relief from debt.
Employers and payroll practitioners might find IRS news releases and Tax tips useful. In IR 2022-183, the IRS warns employers about third parties advising them to claim the Employee Retention Credit (ERC). However, they may not qualify by disregarding the taxpayer's eligibility or calculating the credit incorrectly.
As a result of the Eleventh Circuit Court of Appeals ruling, the IRS regulations were not properly developed, and they were arbitrary and capricious, which would have prevented a deduction for donations of conservation easements because improvements to the easement area would not have been able to be realised in at least in a pro rata way on a subsequent sale to the done organization on the basis of the easement. A similar set of facts had been presented in Oakbrook Landholdings, LLC v. Commissioner, 129 AFTR2d 2022-1031, on which the Sixth Circuit Court of Appeals agreed with the Tax Court.
Om P. Soni v. Commissioner, T.C. Memo 2021-137: It was argued by the United States Tax Court that a rule rarely applied to tax cases was the tacit consent rule. Therefore, despite the taxpayer's wife's lack of signatures on the tax return and other related documents, the court held that her actions invoked the tacit consent rule. As per court's decision, she was liable for the tax deficiency.
The Tax Court found that the defunct restaurant's unreported gross receipts were taxable to the individual since the underlying corporation had made an Selection that it could not affirmatively revoke.
Despite completing all the steps in a business plan, a couple who bought a Mojave Desert property named "Paradise Acres" was unable to deduct the costs associated with a purported organic farming business.
In the absence of any documentation to the contrary, the Eighth Circuit Court of Appeals agreed with the Tax Court that payments that a C corporation made to two corporations and an individual were distributions and not consulting payments.
In order to deny stockholders a deduction for corporate expenses they paid individually, the Tax Court argued that a taxpayer could not deduct expenses paid on behalf of another party. In this case, the court would have considered the individual payments to be capital contributions, which were constructively used to pay the expenses incurred by the corporation.
After the website's functionality was completed, the Tax Court ruled that the website became the property of the business, and expenses should be deducted rather than amortized as part of the business. This was four years prior to profitability.
A Tax Court found that only one of 11 checks used for the annual exclusion expired before the decedent's death, thus resulting in the remaining checks being considered incomplete transfers.
Based on the restriction on the construction of additional buildings and structures on a residential property with a golf course, the Tax Court determined that an easement was worth more than $7.8 million, rejecting the IRS value of $20,000. In order to determine the value, the taxpayer used an original valuation of more than $10 million.
After a Washington Federal District Court reversed a decision, a couple who had a recourse home mortgage converted to a nonrecourse mortgage upon filing bankruptcy were able to deduct over $100,000 in interest paid on a short sale even though they did not have to report relief from indebtedness income.
A loss on a sale of four lots by a personal injury lawyer was classified as a capital loss rather than ordinary, according to the Tax Court, which considered eight factors and found six of them to be in favor of the IRS. By using the word "investments" in both the entity name and the entity's purpose, the taxpayer did not help himself.
Based on the Tax Court's analysis, a person who worked under a United States government contract in Saudi Arabia had his tax home in Saudi Arabia, where he had significant involvement in the community and stronger ties to Saudi Arabia than to the United States.
In a case earlier this year, the Tax Court denied a taxpayer's appeal for income exclusion as a result of income earned abroad. This taxpayer worked in Iraq in a "walled compound" while renting out his California home while living in his Nevada home with his former spouse and children. Aside from his car and bank accounts, he continued to live in the United States.
A New Jersey Federal District Court agreed with the Third Circuit Court of Appeals that a trust issued a 1099-C to the plaintiff as regulations require the form to be issued upon an identifiable event, such as a creditor ceasing collection efforts. Consequently, the court found that the 1099-C is not a means to discharge debt, so collection activity could resume (forcing the individual to provide documentation of income).
In accordance with the Tax Court, the Ninth Circuit Court of Appeals ruled that legal malpractice payments resulting in the mishandling of a physical injury claim are taxable to the recipient. Rather than compensating the plaintiff for physical injuries sustained in the negligence suit, the settlement was entered to compensate him for the harm caused by the malpractice.
As a result of recent authority, a California bankruptcy court allowed an individual to discharge income tax liability for a year in which the IRS prepared a substitute for return prior to the actual return filing, despite financial and family difficulties preventing timely filing. After the extended due date (17 months), the tax assessment was reduced because the return was filed in a reasonable amount of time.
Even though a sales representative was terminated following a heart attack, the court determined that the damages paid were taxable. Neither physical injury nor worsened physical injury arose from or was caused by the company's conduct, as the company was only compensated for emotional distress.
As the Eleventh Circuit ruled in In Re: Hoffman, 129 AFTR2d 2022-________, Roth IRAs are protected from creditors the same as traditional IRAs.
It was held by a New Jersey bankruptcy court in In Re: Gilbert, 130 AFTR2d 2022-5719, that qualified retirement plans are protected from creditors even if they lack anti-alienation provisions.
These are a few highlights of 2022’s tax developments. At myCPE, you can learn more about tax changes andIRS updates. We have numerous live and self-study webinars on similar topics provided by IRS and industry expert speakers. Check out our full range of tax CE courses today!
Jason Dinesen (LPA, EA) is an entrepreneur, tax expert, and CPE Presenter. Dinesen brings over 15 years of experience helping individuals and businesses with accounting, bookkeeping, tax preparation, and business advisory in various industries. Dinesen is a regular CPE Presenter at myCPE. He has coached more than 200k+ accounting, taxes, and HR professionals on various topics of accounting, individual taxation, corporate taxation, and professional ethics. Jason has developed a strong following within the professional community for tax-related subjects. Dinesen is known for sharp tax interpretations, and he quickly brings his analysis of the latest tax updates and IRS guidance to the professional community.
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