Overview
Second Circuit Issues Decision in Estate of McKelvey v. Commissioner: Today, the US Court of Appeals for the Second Circuit reversed the Tax Court’s decision in Estate of McKelvey v. Commissioner. The Tax Court had rejected the IRS’s claim that the Estate of Andrew McKelvey owed $41 million in taxes with respect to McKelvey’s 2008 income tax return for omitting short and long-term capital gains arising from the execution of new contracts extending the valuation dates of two variable prepaid forward contracts. The Second Circuit reversed and remanded for (1) determination of whether the termination of obligations that occurred when the new contracts were executed resulted in taxable short-term capital gains, and (2) calculation of the amount of long-term capital gains that resulted from the constructive sales of the collaterized shares.
Tax Court Issues Memorandum Opinion in Chrem v. Commissioner: Today, the Tax Court issued a memorandum opinion in Chrem v. Commissioner. Petitioners owned the stock of a closely-held Hong Kong corporation (Comtrad). A related company proposed to purchase Comtrad’s stock for $4,500 per share. After Comtrad’s shareholders had agreed to tender a portion of their shares, petitioners donated the balance of their stock to a charitable organization. The acquiring company then completed the acquisition, purchasing the donated stock for $4,500 per share. Petitioners claimed charitable contribution deductions for their gifts on their 2012 federal income tax returns, valuing the donated stock at $4,500 per share. The IRS issued notices of deficiency, determining that petitioners were liable for tax under the assignment of income doctrine on their transfers of stock to the charity, and that petitioners had failed to obtain qualified appraisals of the donated property and to attach such appraisals to their returns where applicable. The Tax Court denied all motions for summary judgment filed by the parties with respect to the determinations, concluding that there were material disputes of fact.
TIGTA Releases Two Reports: Today, the Treasury Inspector General for Tax Administration (TIGTA) released a report finding that the IRS still makes no systemic use of Currency Transaction Report (CTR) data in examinations. TIGTA recommended that the IRS (1) establish formalized procedures for processing Bank Secrecy Act Program referrals and begin tracking the time required to send referrals to the Field Exam Support Team, and (2) clarify formal Internal Revenue Manual procedures to assist examiners in their consideration of CTR data in examinations.
TIGTA also released a report on the results of TIGTA’s evaluation of each federal agency’s information and security programs and practices under the Federal Information Security Modernization Act of 2014.
Tax Inspectors Without Borders to Release Annual Report on October 4: Tax Inspectors Without Borders (TIWB), a joint initiative of the Organization for Economic Co-operation and Development and United Nations Development Programme, has been working with developing countries since 2013 to improve auditing and compliance worldwide. TIWB has announced that it will release its Annual Report, which covers the initiative’s activities from May 2017 to April 2018, on October 4.
Miscellaneous Guidance:
Notice 2018-77 announces the special per diem rates effective October 1, 2018, which taxpayers may use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home. The notice provides the special transportation industry rate, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method.