Page 529 - JoFA_2022

TAX MATTERS

These contingencies include “attaining T.C. Memo. 1998-53; and Fosberg, T.C. only is the Tax Court not a court of
a specified age, marrying, dying, leaving Memo. 1992-713. equity but [taxpayers], in effect, are ask-
school, or a similar contingency” (former As for the taxpayers’ invocation of ing us to legislate changes in the statute
Sec. 71(c)(2)(A)). Temp. Regs. Sec. the Full Faith and Credit Act, the court as enacted by Congress.”
1.71-1T(c), Q&A-17, adds to these concluded that argument was misplaced. The Tax Court thus concluded that
examples attaining a specified income The court said that the state court’s order the payments by Alejandro to Cristina
level, leaving the spouse’s household, or merely reflected that the payment was were nondeductible child support pay-
gaining employment. a family support payment, which under ments and upheld the deficiency.
California state law deems a child to California law is an unallocated payment ■ Rojas, T.C. Memo. 2022-77
be emancipated if “one of the following of both child and spousal support.
requirements are met: (1) appointment Furthermore, federal law and not state — John McKinley, CPA, CGMA, J.D.,
of a guardian of the person; (2) marriage; law governed the payments’ federal LL.M., is a professor of the practice in
(3) attainment of majority; (4) active deductibility or nondeducibility, the accounting and taxation in the SC Johnson
duty with the armed forces of the United court said, citing Bardwell, 318 F.2d 786 College of Business, and Matthew Geiszler,
States; or (5) receipt of a declaration of (10th Cir. 1963). Ph.D., is a lecturer in accounting in the
emancipation under the Emancipation The Tax Court similarly denied the College of Human Ecology, both at Cornell
of Minors Law” (Witkin, Summary of taxpayers’ equitability argument, noting University in Ithaca, N.Y.
California Law, Chapter XIV, §356 that in an analogous case, Paxman, 50
(11th ed. 2021)). T.C. 567 (1968), aff’d, 414 F.2d 265 To comment on this column, contact
The taxpayers claimed that former (10th Cir. 1969), it had stated that “not Paul Bonner, the JofA’s tax editor. ■
Sec. 71(c)(2)(A) did not apply to the
family support provision of the divorce
instrument, since the payment consti- LINE
tuted a “mixed contingency” between
spousal and child support. Alternatively, ITEMS
they asserted that the federal Full Faith
and Credit Act, 28 U.S.C. Section 1738, For these full stories plus the latest tax news, visit journalofaccountancy.com and
precluded the Tax Court from reclassify- thetaxadviser.com.
ing the spousal support to child support,
since the state court had stated that Final regulations adopt ‘family-friendly’
“there is no current child support order.” health care affordability test
Finally, the taxpayers contended that For purposes of the Sec. 36B premium tax credit, T.D. 9968
it was inequitable to treat the payments bases affordability of employer-offered coverage of an em-
as nondeductible child support, since ployee’s family members on the cost of family coverage rather
the order issued by the state court than, as previously, the employee’s self-only coverage.
had deemed the payments were not
child support. IRS raises per diem standard rates for business travel
Holding: The Tax Court held Under Notice 2022-44, the high-low method rates are slightly higher and the list
that the child-related contingency in of high-cost localities in the continental United States is revised, both effective Oct.
the divorce instrument triggered the 1, 2022.
application of former Secs. 71(c)(1) and
(2)(A), thereby making the payments AICPA again critiques new IRS requirements
excludable from Cristina’s gross income for R&D credits
and not deductible from the taxpayers’ In a second letter, the AICPA takes issue with broad new
gross income. documentation requirements for refund claims involving the
With respect to the taxpayers’ Sec. 41 credit, outlined in an IRS memo in fall 2021.
argument that the divorce instrument’s
“mixed contingency” made the provi- R&D credit claim transition period extended IMAGES BY ILLUSTRATOR DE LA MONDE/GETTY IMAGES
sions inapplicable, the court reasoned Taxpayers now have until Jan. 10, 2024, to supply missing information within 45
that former Sec. 71(c)(2)(A) is triggered days of submitting a Sec. 41 research and development credit refund claim under
without regard to any other contingen- new requirements.
cies within the divorce instrument, citing
Biddle, T.C. Memo. 2020-39; Hammond,

38 | Journal of Accountancy December 2022