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IRS Releases Memorandum on Deducting Cryptocurrency Donations

by , and | Jan 20, 2023 |

On January 13, 2023, the Internal Revenue Service (IRS) released a memorandum (CCA 202302012) concluding that a qualified appraisal is required when a taxpayer claims a charitable contribution deduction exceeding $5,000 for donated cryptocurrency. Valuations reported by cryptocurrency exchanges do not qualify as “qualified appraisals.” The memorandum is relevant to any taxpayer who has donated (or plans to donate) cryptocurrency if they also intend to claim a charitable deduction.

SUBSTANTIATION REQUIREMENTS FOR CHARITABLE CONTRIBUTION DEDUCTIONS

Internal Revenue Code Section 170 generally allows deductions for charitable contributions in the taxable year that the contributions are made. However, these deductions are allowed only if they are verified under US Department of the Treasury (Treasury) regulations. Deductions may be denied if the taxpayer does not meet certain substantiation requirements outlined in Section 170(f)(11).

The substantiation requirements for charitable contribution deductions generally require that, for contributions of property for which a deduction of more than $5,000 is claimed, the taxpayer must obtain a “qualified appraisal” of the property.

MEETING THE QUALIFIED APPRAISAL REQUIREMENT

An appraisal can only be qualified if it is conducted by a qualified appraiser in accordance with generally accepted appraisal standards. To be qualified, an appraiser must (1) be an individual, (2) have earned an appraisal designation from a recognized professional appraiser organization or meet minimum education and experience requirements set by the Treasury or the IRS, and (3) regularly perform appraisals for which he or she receives compensation.

Furthermore, the appraisal must not be made and signed by the appraiser sooner than 60 days before the donation or later than the due date (with extensions) of the tax return on which the deduction is claimed. The qualified appraiser must sign and date the appraisal report and include a declaration that such person (1) understands the appraisal will be used in connection with a return or claim for refund, (2) understands that such person may be subject to a penalty if the appraisal contains a substantial or gross valuation misstatement of the value of the property and the taxpayer claims a deduction based on the appraisal, and (3) has not, within the past three years, been barred from presenting evidence or testimony before the Treasury or the IRS. The appraiser may not receive a fee that is based to any extent on the appraised value of the property.

EXCEPTIONS TO THE QUALIFIED APPRAISAL REQUIREMENT

While the qualified appraisal requirement may seem to impose an onerous burden on taxpayers, given the philanthropic purpose of charitable donations, this is mitigated by rules excepting certain readily valued property from the qualified appraisal requirement. For example, a taxpayer is not required to obtain a qualified appraisal for cash donations, stock in trade, inventory, inventory property, publicly traded securities and certain vehicles.

Notably, “publicly traded securities” for this purpose is limited to mean corporate stock; a right to subscribe for or to receive a share of corporate stock; or a bond, debenture, note, certificate, or other evidence of indebtedness issued by a corporation, a government or [...]

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Weekly IRS Roundup January 9 – January 13, 2023

by | Jan 17, 2023 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 9, 2023 – January 13, 2023.

January 9, 2023: The IRS released Internal Revenue Bulletin 2023-2, which highlights the following:

  • Announcement 2023-2: This announcement provides transitional guidance with respect to the reporting of information on digital assets. Specifically, brokers are not required to report additional information on the disposition of digital assets until final regulations under Sections 6045 and 6045A are issued.
  • Notice 2023-8: This notice provides guidance for brokers to comply with the provisions of the final regulations under Section 1446(f) and certain provisions of the final regulations that apply to Section 1446(a) that relate to withholding on the transfer of an interest in a publicly traded partnership.
  • Revenue Rule 2023-1: This revenue ruling provides the applicable federal rates for federal income tax purposes for January 2023. The short-term federal interest rate will decrease to 4.50%, the mid-term rate will drop to 3.85% and the long-term rate will fall to 3.84%.
  • Treasury Decision 9970: This document includes final regulations that provide an automatic extension for providers of minimum essential coverage (including health insurance issuers, self-insured employers and government agencies) to furnish individual statements regarding such coverage and an alternative method for furnishing individual statements when the individual shared responsibility payment amount is zero. The final regulations also provide an automatic extension for applicable large employers to furnish statements relating to health insurance that they offer to their full-time employees.
  • Notice 2023-5: This notice provides updates on the corporate bond monthly yield curve, the corresponding spot segment rates and the 24-month average segment rates under Section 430(h)(2). This notice also provides guidance on the interest rate for 30-year Treasury securities as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate.
  • Notice 2023-4: This notice provides the percentage increase for calculating the qualifying payment amounts for items and services furnished during 2023 with respect to Sections 9816 and 9817 of the Internal Revenue Code, Sections 716 and 717 of the Employee Retirement Income Security Act of 1974 and Sections 2799A-1 and 2799A-2 of the Public Health Service Act.
  • Notice 2023-06: This notice explains the requirements for fuel to be eligible for the sustainable aviation fuel (SAF) credit, how to claim the credit and who must be registered. The SAF credit was created by the Inflation Reduction Act of 2022 and applies to a qualified fuel mixture containing SAF for certain uses or sales in the 2023 and 2024 calendar years.

January 9, 2023: The IRS released Tax Tip 2023-02, advising people to hang up if scammers call during tax season. The IRS says it will never (1) call to demand immediate payment using [...]

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Weekly IRS Roundup January 3 – January 6, 2023

by | Jan 9, 2023 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 3, 2023 – January 6, 2023.

January 3, 2023: The IRS released Internal Revenue Bulletin 2023-1, which highlights the following:

  • Revenue Procedure 2023-1: This contains the revised procedures for letter rulings and information letters issued by the different offices of the Associate Chief Counsel. This procedure also contains the revised procedures for determination letters issued by the Large Business and International (LB&I) Division, the Small Business/Self Employed Division, the Wage and Investment Division and the Tax Exempt and Government Entities (TE/GE) Division.
  • Revenue Procedure 2023-2: This procedure explains when and how an associate office within the Office of Chief Counsel provides technical advice conveyed in technical advice memoranda (TAM). It also explains the rights a taxpayer has when a field office requests a TAM.
  • Revenue Procedure 2023-3: This procedure provides a revised list of areas of the Internal Revenue Code (IRC) under the jurisdiction of the Associate Chief Counsel offices of Corporate, Financial Institutions and Products, Income Tax and Accounting, Passthroughs and Special Industries, Procedure and Administration, Employee Benefits, Exempt Organizations and Employment Taxes. These relate to matters in which the IRS will not issue letter rulings or determination letters.
  • Revenue Procedure 2023-4: This document provides guidance relating to the types of advice the IRS provides to taxpayers on issues under the jurisdiction of the TE/GE Division, Employee Plans Rulings and Agreements and the procedures that apply to requests for determination letters and private letter rulings.
  • Revenue Procedure 2023-5: This provides the procedures for issuing determination letters on items under the jurisdiction of the Director, Exempt Organizations Rulings and Agreements.
  • Revenue Procedure 2023-7: This procedure provides the areas under the jurisdiction of the Associate Chief Counsel International in which rulings will not be issued.

January 3, 2023: The IRS encouraged taxpayers to review the Taxpayer Bill of Rights, which may help resolve filing season questions. Each month, Tax Tips will focus on one of the 10 categories of taxpayer rights.

January 3, 2023: The IRS issued Revenue Procedure 2023-10, which prescribes the loss payment patterns for the 2022 determination year and the discount factors for the 2022 accident year for use by insurance companies in computing discounted unpaid losses under Section 846 and discounted estimated salvage recoverable under Section 832.

January 4, 2023: The IRS reminded taxpayers that final 2022 quarterly estimated tax payments are due January 17. The IRS recommends for taxpayers who earn or receive income not subject to tax withholding, such as self-employed individuals or independent contractors, to pay their taxes quarterly.

January 5, 2023: The IRS released its latest executive column in A Closer [...]

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Weekly IRS Roundup December 26 – December 30, 2022

by | Jan 3, 2023 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 26, 2022 – December 30, 2022.

December 26, 2022: The IRS released Internal Revenue Bulletin 2022-52, which highlights the following:

  • Proposed Regulations 106134-22: These proposed regulations identify certain syndicated conservation easement (SCE) transactions and substantially similar transactions as “listed transactions,” which means they must be reported to the IRS.
  • Revenue Procedure 2022-43: This procedure sets out the final qualified intermediary withholding agreement (QI agreement), which began on January 1, 2023. The QI agreement allows certain people to enter into an agreement with the IRS to simplify their obligations as withholding agents and as payors for amounts paid to their account holders and allows certain people to act as qualified derivatives dealers and assume primary withholding and reporting responsibilities on all dividend equivalent payments they make.
  • Announcement 2022-28: This announcement is released in conjunction with the above proposed regulations that identify certain SCE transactions as “listed transactions.” The announcement explains that the regulations are being proposed in response to certain court decisions holding that the Administrative Procedure Act requires the IRS to identify listed transactions through notice-and-comment rulemaking and that the IRS plans to issue additional regulations related to other “listed transactions.”
  • Notice 2022-61: This notice provides guidance on the prevailing wage and apprenticeship requirements, as amended by the Inflation Reduction Act of 2022 (IRA). This notice also serves as the published guidance establishing the 60-day period with respect to the applicability of the prevailing wage and apprenticeship requirements.
  • Proposed Regulations 113839-22: This document contains proposed regulations that treat members of a consolidated group as a single US shareholder in certain cases for purposes of Section 951(a)(2)(B). The proposed regulations affect consolidated groups that own stock of foreign corporations.
  • Revenue Procedure 2022-42: This procedure provides guidance on new rules added as part of the IRA on how to enter into a written agreement with the IRS to provide periodic written reports containing specified information related to a clean vehicle manufactured. It also provides the procedures for people selling vehicles to report information to the IRS in order for the vehicle to be eligible for the credit.

December 27, 2022: The IRS and the US Department of the Treasury (Treasury) announced interim guidance on the corporate stock repurchase excise tax. Notice 2023-2 provides the interim guidance on the new 1% excise tax on a covered corporation’s repurchases of corporate stock under Section 4501. (Section 4501 was added as part of the IRA.) The notice provides an exclusive list of Section 317(b) redemption transactions that are treated as Section 317(b) redemption but are not repurchases, as well as an exclusive list of transitions that are economically similar transactions. The notice applies to stock [...]

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Weekly IRS Roundup December 19 – December 23, 2022

by | Dec 27, 2022 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 19, 2022 – December 23, 2022.

December 19, 2022: The IRS released Internal Revenue Bulletin 2022-51, which highlights the following:

  • Revenue Ruling 2022-23: This revenue ruling announces the interest rates for the first quarter of 2023. The new interest rates are as follows:
    • Overpayments: 7%
    • Overpayments for corporations: 6%
    • Corporate overpayments for portion exceeding $10,000: 4.5%
    • Underpayments: 7%
    • Large corporate underpayments: 9%
  • Announcement 2022-26: This announcement notifies taxpayers that payments made to property owners under Suffolk County’s Septic Improvement Program are not required to be included in gross income for federal income tax purposes.
  • Revenue Ruling 2022-24: This revenue ruling provides tables for covered compensation related to qualified pension, profit-sharing and stock bonus plans under Section 401(l)(5)(E) and related income tax regulations for the 2023 plan year. The taxable wage base is $160,200 for the 2023 tax year (up from $147,000 in 2022) for purposes of determining covered compensation.
  • Announcement 2022-24: This announcement lists the organizations that no longer qualify for 501(c)(3) and 170(c)(2) status.
  • Announcement 2022-25: This announcement notifies potential donors of a stipulated decision by the US Tax Court in declaratory judgment proceedings under Section 7428.
  • Announcement 2022-27: This announcement reminds state and local housing credit agencies of the deadline related to certain allocation of housing credit dollar amounts under Section 42.

December 19, 2022: The IRS and the US Department of the Treasury (Treasury) issued guidance related to the Sustainable Aviation Fuel (SAF) credit. Notice 2023-06 explains the requirements for the fuel to be eligible for the SAF credit, how to claim the credit and who must be registered. The SAF credit was introduced in the Inflation Reduction Act of 2022 (IRA) and applies to a qualified fuel mixture containing sustainable aviation fuel for certain uses or sales in the 2023 and 2024 calendar years.

December 19, 2022: The Treasury announced a timeline for providing additional information on key tax provisions for the IRA. Before the end of the year, the Treasury will provide: (1) FAQs on the tax credit for energy-efficient home improvement projects and residential energy property; (2) initial guidance on the corporate alternative minimum tax; and (3) initial guidance on the excise tax on stock buybacks. Beginning January 1, 2023, consumers and businesses will be able to access tax benefits from many of the IRA’s climate provisions.

December 20, 2022: The IRS issued Notice 2023-4, which provides the percentage increase for calculating the qualifying payment amounts for items and services furnished during 2023 with respect to Sections 9816 and 9817 of the Internal Revenue Code, Sections 716 and 717 of the Employee Retirement Income Security [...]

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IRS Finalizes New Schedule UTP and UTP Instructions

by and | Dec 23, 2022 | ,

On December 22, 2022, the Internal Revenue Service (IRS) finalized changes to Schedule UTP, Uncertain Tax Position Statement, and Instructions for Schedule UTP. Proposed changes to Schedule UTP and the UTP Instructions were announced on October 11, 2022, with comments requested by November 18, 2022. Our prior coverage of the proposed changes and comments can be found here and here.

Several comments were submitted in response to the proposed changes, expressing significant concerns regarding privilege issues, the increase in information required to be disclosed and uncertainty surrounding penalty protection. We submitted our own comments, which focused primarily on the IRS’s proposal to require taxpayers to identify all “contrary authorities” to a position identified on Schedule UTP, including nonprecedential and unpublished guidance.

The final Schedule UTP and UTP Instructions removed the requirement to identify nonprecedential and unpublished guidance. The UTP Instructions also modified the language regarding what is needed for the concise description of the issue to focus more on the facts involved. Finally, the IRS confirmed that the amount of any reserve need not be disclosed, but rather just the amount listed on the line to which the uncertain tax position relates. These are welcome developments for taxpayers and should alleviate some of the concerns expressed by commentators. However, the IRS has not indicated what impact these final changes will have on its “policy of restraint” to seek accrual work papers.

Practice Point: Corporate taxpayers with uncertain tax positions now have a final form and final instructions to use for their 2022 tax reporting. They should review the finalized changes and determine the best approach to ensure compliance with these changes.



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Weekly IRS Roundup December 5 – December 9, 2022

by | Dec 12, 2022 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 5, 2022 – December 9, 2022.

December 5, 2022: The IRS released Internal Revenue Bulletin 2022-49, which highlights the following:

  • Revenue Procedure 2022-39: This revenue procedure obsoletes Revenue Procedure 94-69, 1994-2 C.B. 804, and sets out the procedures for eligible taxpayers to file an amended return under Section 1.6664-2(c)(4)(ii) of the regulations. This revenue procedure also sets out the procedures for eligible taxpayers to avoid Sections 6662(b)(1) and 6662(b)(2) accuracy-related penalties to the extent that the taxpayers report errors resulting in additional tax or adequately discloses the tax treatment of an item that has a reasonable basis.
  • Notice 2022-60: This notice sets forth the corporate bond monthly yield curve, the corresponding spot segment rates and the 24-month average segment rates for November 2022. The notice also provides guidance as to interest rates on 30-year Treasury securities and 30-year Treasury weighted average rates.
  • Notice 2022-62: This notice contains the 2022 Required Retirement Plan Amendments List. The list establishes the end of the remedial amendment period and the plan amendment deadline for changes in qualification requirements and Section 403(b) requirements for qualified individually designed plans and Section 403(b) individually designed plans, respectively.
  • Proposed Regulations 112096-22: This document contains proposed regulations related to the foreign tax credit, which provide guidance with respect to the reattribution asset rule for purposes of allocating and apportioning foreign taxes, the cost recovery requirement and the attribution rule for withholding tax on royalty payments. Written comments should be received by January 23, 2023, for consideration.
  • Revenue Rule 2022-22: This revenue ruling provides the applicable federal rates for federal income tax purposes for December 2022. The short-term federal interest rate will increase to 4.55%, the mid-term rate will rise to 4.27% and the long-term rate will rise to 4.34%.

December 5, 2022: The IRS released Tax Tip 2022-185, promoting IRS social media accounts and e-News services. The IRS utilizes several social media platforms, including YouTube, Facebook, Instagram, Twitter and LinkedIn.

December 6, 2022: The IRS and the US Department of the Treasury (Treasury) issued proposed regulations that identify certain syndicated conservation easement (SCE) transactions as “listed transactions,” which means they must be reported to the IRS. The IRS previously identified certain SCE transactions in Notice 2017-10, however, courts have recently held that Notice 2017-10 is invalid because it did not follow notice and public comment procedures. The IRS also released Announcement 2022-28, which provides additional background information related to Notice 2017-10 and notes the IRS and the Treasury’s disagreement with the courts.

December 6, 2022: The IRS encouraged taxpayers to take important steps in December in preparation of filing their 2022 federal [...]

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Weekly IRS Roundup November 28 – December 2, 2022

by | Dec 5, 2022 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 28, 2022 – December 2, 2022.

November 28, 2022: The IRS released Internal Revenue Bulletin 2022-48, which highlights the following:

  • Notice 2022-59: This notice provides the adjusted applicable dollar amount to be multiplied by the average number of covered lives for purposes of calculating the fee imposed by Sections 4375 and 4376 for policy years and plan years that end on or after October 1, 2022, and before October 1, 2023. The amount is $3.00, up from $2.79.
  • Announcement 2022-23: This announcement notifies taxpayers of new credit amounts for calendar year 2022 for the renewable electricity production credit under Section 45, in the case of any qualified facility placed in service after December 31, 2021.

November 28, 2022: The IRS and Security Summit partners announced the kick-off date for the 7th National Tax Security Awareness Week. The group also urged people to be aware of holiday scams and to protect their personal information.

November 28, 2022: The IRS released Tax Tip 2022-181, reminding taxpayers to be aware of gift card scammers during the holidays. One of the common scams used this time of year is con artists asking taxpayers to pay fake tax bills with gift cards. Scammers also sometimes use a compromised email account to request gift card purchases for family and friends.

November 29, 2022: The IRS warned taxpayers to be on alert for scammers using fake charities as a way to make money during the holiday season. The message came on Giving Tuesday as part of Nationwide Tax Security Awareness Week. Tips for avoiding fake charity scams include not giving into pressure, being wary of how donations are requested and not giving more than is needed.

November 29, 2022: The IRS released Tax Tip 2022-182, reminding people that they may be eligible for more than one filing status. The IRS suggests that taxpayers review their options and pick the one that makes the most sense for them.

November 29, 2022: The IRS announced that interest rates will increase for the first quarter of 2023. The new interest rates, published in Revenue Ruling 2022-23, begin January 1, 2023, and are as follows:

  • Overpayments: 7%
  • Overpayments for corporations: 6%
  • Corporate overpayments for portion exceeding $10,000: 4.5%
  • Underpayments: 7%
  • Large corporate underpayments: 9%

November 29, 2022: The IRS announced that the IRS Office of Chief Counsel, along with the American Bar Association, held its first centralized National Virtual Settlement Event in October. Over the course of four days, 44 cases were settled and at least 59 meetings took place with taxpayers, pro bono attorneys and representatives from the IRS Office of Chief Counsel.

November 29, 2022: The IRS
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IRS Issues New Procedures for Large Corporate Audit Disclosures

by and | Nov 30, 2022 | , ,

For decades, large corporate taxpayers under continuous audit have been able to make disclosures under Revenue Procedure 94-69 at the beginning of an examination to notify the Internal Revenue Service (IRS) of adjustments (both positive and negative) to their tax returns and thereby obtain protection from various penalties and obviate the need to file a formal amended tax return. In 2020, the IRS questioned the continuing utility of this disclosure process and invited comments on said process. With the new Revenue Procedure 2022-39, the IRS has moved the largest corporate taxpayers into a new era of voluntary disclosure. This is a significant development for impacted taxpayers.

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