Page 155 - TaxAdviser_Jan_Apr23_Neat

payments were subject to a child-related
contingency and therefore were consid- Many commentators addressed the two
ered child support rather than alimony.
A state court had agreed there was no versions of the 10-year rule introduced by the
child support, but that was deemed ir- IRS proposals.
relevant for federal tax purposes.
Sec. 262: Personal, living, and
family expenses of a return and thus lacked a business enacted in December 2019 and effective
In Sonnitag,62 the Tax Court disallowed purpose for the expense. Consequently, for 2020 and later years.66 The Service
expenditures that the petitioner (who it was a personal expense of the owner. later delayed the effective date of the
was in the music entertainment busi- proposed regulations until 2023.67 The
ness) deducted as research expenses. Sec. 274: Disallowance of regulations relate to required minimum
The petitioner claimed the cost of con- certain entertainment, etc., distributions (RMDs) from qualified
cert tickets, a portion of his cable TV expenses plans, Sec. 403 arrangements, individual
bill, music subscriptions, and television In Salter64 (also discussed above under retirement accounts (IRAs), annuities,
streaming services as business expenses. Secs. 72 and 213), the Tax Court and Sec. 457 plans. At the same time,
The Tax Court held that the expenses denied the taxpayer’s itemized deduc- the IRS updated almost all distribution
were primarily for personal enjoyment tions for automobile expenses because regulations and converted them from a
instead of for a trade or business. De- he failed to substantiate them. The series of questions and answers (Q&As)
ductions are generally unavailable for taxpayer worked for Home Depot to the type of text familiar in IRS regu-
personal expenses under Sec. 262(a). from home but regularly traveled by lations. Comments were requested by
In Sherwin Community Paint- car to the stores he supervised. Home May 25, 2022 (the AICPA submitted
ers Inc.,63 the Tax Court held that a Depot offered reimbursement for three comment letters68).
company could not take a business travel expenses based on a mileage rate; The proposed regulations clarify the
deduction for tuition expenses paid however, the taxpayer did not request definition of a “conduit trust,” establish
for the owner’s daughter’s boyfriend reimbursement because he believed he the “age of majority” as 21 years old, and
(and later husband) to take a coding would get a bigger refund if he claimed forgive year-of-death RMDs for dece-
course at a university. The court held his automobile expenses on his tax re- dents if the beneficiary was in compli-
that the tuition was a personal expense; turn. Sec. 274(d)(4) sets forth substan- ance by the due date of their tax return.
under Sec. 262, a taxpayer cannot de- tiation requirements with respect to Other provisions are more controversial.
duct personal or family expenses. The listed property. Passenger automobiles Under the SECURE Act, individual
company contended it received website are listed property under Sec. 280F(d) persons who are designated beneficiaries
services in exchange for the tuition (4)(A)(i). Because the taxpayer failed are subject to a 10-year rule if they do
because, after completing the course, to produce evidence to substantiate his not meet the definition of an eligible
the boyfriend used his learned skills to automobile expenses, such as mileage designated beneficiary. But the proposed
update the company’s website, spend- logs or odometer readings, his claim regulations introduce differing tax treat-
ing considerable time on this task, and was denied. ment depending upon whether the de-
later performed additional computer- cedent died after the required beginning
related work without compensation. Sec. 401(a)(9): Required date of the RMDs.
But the boyfriend was not an employee distributions Many commentators addressed the
of the company and did not have an SECURE Act proposed regu- two versions of the 10-year rule intro-
agreement that he would perform any lations: In February 2022, the IRS duced by the IRS proposals. Before the
services in exchange for the tuition. proposed regulations65 under the Set- proposed regulations were issued, most
The court concluded that the company ting Every Community Up for Retire- practitioners had interpreted the 10-year
paid the tuition without an expectation ment Enhancement (SECURE) Act, rule to require only that the inherited

62. Sonnitag, T.C. Summ. 2022-3. 66. Division O of the Further Consolidated Appropriations Act, 2020, P.L.
63. Sherwin Community Painters, Inc., T.C. Memo. 2022-19. 116-94.
64. Salter, T.C. Memo. 2022-29. 67. Notice 2022-53.
65. REG-105954-20. 68. On June 14, 2022; July 1, 2022; and Dec. 22, 2022.

www.thetaxadviser.com March 2023 41