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GUIDANCE

Final Regulations
The Treasury Department and IRS released final regulations (TD 9884) confirming individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018-25 will not be adversely affected after 2025 when the exclusion is scheduled to revert to pre-2018 levels.

Revenue Procedures
In Rev. Proc. 2019-42, IRS updates Rev. Proc. 2019-09 and identifies circumstances under which the disclosure on a taxpayer's return with respect to an item or position is adequate for the purpose of reducing the § 6662(d) understatement of income tax penalty.

In Rev. Proc. 2019-48, IRS updates rules regarding the use of per diem rates to substantiate (under § 274(d)) the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Ed Zollars at Current Federal Tax Developments, unpacks the rule update.

In Rev. Proc. 2019-46, IRS provides rules for using optional standard mileage rates to compute the deductible costs of operating a vehicle for business, charitable, medical, or moving expense purposes.

U.S. Tax Court
After some time away, we are back to at least an occasional peek at the U.S. Tax Court. Judge Holmes (some will remember his excellent keynote address at NAEA's 2017 National Conference) says grace over this week's case, McMillan v. Commissioner (T.C. Memo. 2019-108). E@lert brewed a cup of hot chocolate and settled in for the ride. Judge Holmes opens with this, "This is Denise McMillan's sixth Tax Court case in which the Commissioner challenges deductions she claimed for a horse business..." At this point, we have the right elements—pro se taxpayer, frequent Tax Court flyer, and the combination of "horse" and "business." Judge Holmes follows with, "Her last horse died in 2008 and she has not replaced him. But being horseless hasn't stopped her from claiming deductions for a horse business...[which] she conducts...from the living room of her one-bedroom apartment." We are hooked.

At issue in this glorious mess of a case is the following: On her 2010 return, petitioner reported two businesses: one for "horse breeding/showing," which produced only expenses; and one for "IT and database management services," which produced income. Commissioner disallowed all the horse business deductions, deductions for legal fees and her home office, and argues petitioner should have reported a $70k HOA settlement as taxable income, notwithstanding her assertion the settlement was for pain and suffering and her horse activity is in fact a trade or business.

Cutting to the chase (though, including this pro se gem — Ms. McMillan's litigation experience also includes five previous cases in the Tax Court — it is a fantastic ride), the Tax Court needed to determine five things: the HOA settlement; the Schedule C deductions for horse breeding/showing; the home office deduction for half of her apartment; a Schedule C deduction for attorney's fees; and liability for a § 6662(a) penalty.

We will not spoil the ending, but direct readers’ attentions to the discussion on pp. 46-50 on the substantial understatement penalty...let's just say Commissioner Rettig would not be amused. more


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