Page 143 - TaxAdviser_2022

INDIVIDUALS

she had agreed to manage his trading filing separately, did not result in an to family members with complicated
account. The Fifth Circuit upheld the impermissible double deduction under IRA assets. In IRS Letter Ruling
Tax Court’s determination, finding that the matching design of the alimony 202140011, the decedent named his
under the origin-of-the-claim doctrine regime. The taxpayer’s alimony deduc- trust as the beneficiary of his personal
the deductions did not relate to the tion should be properly viewed as being IRA and the IRA he inherited from
taxpayer’s engagement in a trade or busi- matched against his former spouse’s ali- his brother. The beneficiary trust was
ness for purposes of Sec. 162. mony income, not against his excluded allowed to use trustee-to-trustee trans-
wage income. fers so that each child of the decedent
Sec. 213: Medical, dental, and received interest in two trusts. One
other expenses Secs. 262 and Sec. 280F: trust would list the name of the father’s
In separate IRS news releases, Personal, living, and family trust and the name of the trust for that
IR-2021-66 (March 26, 2021) and expenses particular child; required minimum
IR-2021-181 (Sept. 10, 2021), the In Warque,28 the Tax Court denied an distributions (RMDs) would be based
Service ruled that expenses incurred IRS agent’s deductions for unreim- upon the life expectancy of the oldest
when purchasing personal protective bursed employee business expenses. Paul of the decedent’s children. The other
equipment to prevent the spread of Warque lived in Nevada but worked in trust would list the uncle’s name and
COVID-19 and expenses incurred the Laguna Niguel, Calif., IRS exami- the name of the trust for that particular
for home testing are considered medi- nation office. He deducted his travel child; RMDs would be based on the
cal expenses and are deductible if the expenses as unreimbursed employee decedent’s remaining life expectancy
taxpayer’s qualified medical expenses business expenses. Travel expenses may as determined when he inherited his
exceed 7.5% of AGI. As qualified medi- be deducted under Sec. 162(a)(2) (in- brother’s IRA. The ruling made clear
cal expenses, these are also eligible to be cluding the use of “listed property” as that this result was not affected by
paid or reimbursed under various flexible defined in Sec. 280F(d)(4) and including the change to inherited IRAs enacted
spending accounts (FSAs), health reim- passenger automobiles) if they are ordi- in the SECURE Act29 because the
bursement arrangements (HRAs), and nary and necessary and if incurred while death occurred before 2020, before
health spending accounts (HSAs). away from home and in the pursuit of the applicability date of the SECURE
According to IRS Letter Ruling a trade or business. The key issue here Act amendments.
202114001, a male same-sex couple’s was the location of his “home.” The Earned income: A 2021 case
medical costs and fees related to egg do- Tax Court found that the taxpayer’s tax looked at the definition of earned
nation, in vitro fertilization procedures, home was in Laguna Niguel, noting that income for purposes of making a con-
and gestational surrogacy did not qualify he rented a room near there and that his tribution to a retirement plan.30 Gayle
as deductible medical expenses. Howev- position was not temporary. The court Gaston was receiving deferred com-
er, medical costs and fees directly attrib- concluded that his commuting expenses pensation as a successful representative
utable to the taxpayers, including sperm for travel between his rented room and of Mary Kay Inc. after her mandatory
donation and freezing, were deductible. his place of business were nondeductible retirement age. The income was subject
under Sec. 262. Other employee business to self-employment tax. In addition,
Sec. 215: Alimony expense deductions related to clothing she operated businesses selling products
In Leyh,27 the taxpayer was entitled to an and personal care items were also deter- and acting. The IRS treated the retail
alimony deduction for amounts paid, via mined to be personal expenses and not businesses as not engaged in for profit
payroll deductions, from wages through deductible under Sec. 262(a). under Sec. 183 and treated the deferred
the employer’s cafeteria plan, to pay compensation as retirement income.
for his then-spouse’s health insurance Sec. 401: Qualified pension, To deduct a retirement contribu-
pursuant to a pre-2019 separation agree- profit-sharing, and stock tion, a self-employed person must
ment. The Tax Court found that allow- bonus plans have income from personal services.
ing the husband an alimony deduction, Transfer of IRA assets to trust: The Tax Court held that the retire-
when he and his spouse filed married The IRS issued a private letter ruling ment contribution deductions were not

27. Leyh, 157 T.C. No. 7 (2021). of IRAs and qualified plans must withdraw all money from inherited accounts
28. Warque, T.C. Summ. 2021-18. within 10 years.
29. Setting Every Community Up for Retirement Enhancement (SECURE) Act of 30. Gaston, T.C. Memo. 2021-107.
2019, Division O of P.L. 116-94. Under the SECURE Act, most beneficiaries

34 March 2022 The Tax Adviser