Tax News

CCH (cch.taxgroup.com) reports:

An individual was entitled to challenge his underlying tax liability during a Collection Due Process hearing because he did not receive a notice of deficiency in time to petition the court. The IRS did not produce any evidence that the notice of deficiency was sent to the taxpayer at his address in prison where he resided at the time a notice was sent to his home and during the period in which he could have petitioned the court. The fact that the taxpayer's wife petitioned the court in response to a notice sent to her home only showed that she received the notice and that it was mailed to the couple's personal residence; it did not show that the taxpayer received the notice.
M.L. Conn, TC Memo. 2008-186, Dec. 57,507(M)
Other References:
Code Sec. 6330
CCH Reference - 2008FED ¶38,184.12
Tax Research Consultant
CCH Reference - TRC IRS: 51,056.05
 

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations providing guidance on the reduction of a S corporation's tax attributes when excluding income from the discharge of indebtedness, or cancellation of debt (COD) income, under Code Sec. 108.
Background
When a taxpayer is relieved of a duty to pay an indebtedness, Code Sec. 61 mandates that the discharged debt be included in income. However, Code Sec. 108 provides relief from this inclusion if a taxpayer is bankrupt or insolvent, or in the case of other types of discharged debt, such as qualified farm indebtedness or qualified real property business indebtedness. In these cases, Code Sec. 108(b) requires that certain tax attributes must be reduced and, unless a taxpayer elects to first reduce the basis of depreciable property, the first attribute to be reduced is any net operating loss (NOL) for the year of discharge and any NOL carried over to the year of discharge.
Special rules apply to the COD income of an S corporation. Under Code Sec. 108(d)(7)(A), the reduction of tax attributes is applied at the corporate level. Under Code Sec. 1366(d), the rules governing the taxation of shareholders of an S corpration, a shareholder cannot take into account losses and deductions that are in excess of the shareholder's basis in the stock and debt of the S corporation and, under Code Sec. 108(d)(7)(, any loss or deduction consequently disallowed is treated as a NOL of the S corporation (deemed NOL).
Proposed Rules
The proposed regulations clarify that any disallowed losses or deductions, including those of a shareholder who had transferred all stock during the year, are included in an S corporations deemed NOL. The proposed regulations also provide that if the deemed NOL exceeds the discharged COD income, the excess deemed NOL is allocated to the shareholders as disallowed losses and deductions which can subsequently be taken into account by the shareholders. The method of allocation is based upon each shareholder's disallowed losses and deductions in excess of the amount of COD income that would have been taken into account by each shareholder. Further, any excess deemed NOL allocated to a shareholder that had transferred all of the shareholder's stock during the year of discharged is permanently disallowed.
The proposed regulations also provide that the allocated excess deemed NOL retains the character in the hands of the shareholder that it had for the S corporation, and that, in order to preserve the ordering rules of Code Sec. 108(b)(2), any ordinary loss or deduction that was disallowed and included in the S corporation' deemed NOL is reduced before any disallowed capital loss included in the deemed NOL.
Finally, due to the importance of both the S corporation and other shareholders knowing the amount of each shareholder's disallowed or suspended losses, the proposed regulations require shareholders of an S corporation that excludes COD income to provide information regarding suspended losses to the S corporation. The proposed regulations also require the S corporation to then notify all shareholders of the amount of excess deemed NOL allocated to a shareholder, even if the amount is zero.
Hearing and Comments
A public hearing is scheduled for December 8, 2008, at 10 a.m. Written or electronic comments and outlines of topics to be discussed at the hearing must be received by the IRS by November 4, 2008. The IRS specifically requests comments regarding proposed alternate methods of allocating excess deemed NOLs.
Proposed Regulations,NPRM REG-102822-08, 2008FED ¶49,826
Other References:
Code Sec. 108
CCH Reference - 2008FED ¶7006C
Tax Research Consultant
CCH Reference - TRC SCORP: 404.10
 

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