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NewsNotes Lesli S. Laffie, J.D., LL.M. Social Security Income Base • NOL Carryback Election • Teachers' Expense Receipts • TEAM Pilot Program • Days Spent Paying Taxes (chart)
Court Decisions In Thomas W. McAdams, 118 TC No. 24 (2002), the Tax Court determined that an individual estranged from his wife, who lived in her home for more than 30 days during the tax year at issue, did not "live apart" from her at all times during the tax year for Sec. 86(c)(1)(C)(ii) purposes. Thus, his "base amount" for computing Social Security benefits includible in gross income was zero. The taxpayer had claimed $25,000 as his Social Security base amount because he was married and believed that he lived apart from his wife for the entire year. Also, he claimed married filing separately status because he and his wife were not legally separated or divorced. He used her address as a mailing address and kept things at that location. Although he lived in different parts of the country during most of the year, he stayed at his wife's home when he was in her town. Neither Sec. 86 nor its legislative history define "live apart"; thus, the court looked to case law, which generally held that any time spent living under the same roof was not "living apart." For further discussion, see "Tax Trends," p. 475, this issue.
The IRS announced in IR-2002-66 that taxpayers have until Oct. 31, 2002 to elect whether they want to use the new five-year carryback period for net operating losses (NOLs) enacted in the Job Creation and Worker Assistance Act of 2002 (Act). Under the Act, the new carryback period is effective for tax years ending in 2001 or 2002; however, some taxpayers who filed returns before the law was passed were not able to use this provision. Under Rev. Proc. 2002-40, taxpayers that incurred an NOL in a tax year ending during 2001 or 2002 and elected under Sec. 172(b)(3) to forgo the NOL carryback period can revoke their elections to apply the five-year carryback period. The procedure also allows such taxpayers (as well as taxpayers who used a two-year carryback period for an NOL in a tax year ending during 2001 or 2002) to file an application for a tentative carryback adjustment under Sec. 6411(a), based on a five-year NOL carryback period, even if the 12-month period for filing such an application has expired. The revocation and/or application for tentative carryback adjustment must be made by Oct. 31, 2002. Finally, taxpayers that filed returns for a tax year ending in 2001 or 2002 and who neither elected to forgo the carryback period, nor used the two-year carryback period, may elect to relinquish the five-year carryback period (and thereby retain the ability to use the two-year carryback period) if they act by Oct. 31, 2002. To use or relinquish the five-year carryback period, a taxpayer files:
If revoking the carryback waiver, the top of the form should be labeled "Revocation of NOL carryback waiver pursuant to Rev. Proc. 2002-40." Amended returns should be labeled, "Amended refund claim pursuant to Rev. Proc. 2002-40."
IR-2002-65 advises teachers to save their receipts for purchases of books and classroom supplies. Sec. 62(d), added by the Job Creation and Worker Assistance Act of 2002, allows a $250 above-the-line deduction to eligible educators in public and private elementary and secondary schools for 2002 and 2003 (for details, see News Notes, "Teachers' Expenses," TTA, May 2002, p. 277). For this purpose, "educator" is defined as a teacher, instructor, counselor, principal or aide who works at least 900 hours per school year. Educators who excluded education savings bond interest or payments from qualified tuition programs, or who made tax-free withdrawals from an education savings account, will be eligible for the new deduction only to the extent that their qualified expenses exceed the tax-free amounts. To prevent a missed deduction at tax time, the IRS suggests that educators maintain records of qualifying expenses, noting the date, amount and purpose of each purchase. Details on this deduction are set forth in IRS Pub. 3991, Highlights of the Job Creation and Worker Assistance Act of 2002, available on the IRS's Website at www.irs.gov , or by calling (800) TAX-FORM.
Rev. Proc. 2002-30 explains a pilot program to test whether the process for issuing a Technical Advice Memorandum (TAM) can be streamlined. The new advice is known as a Technical Expedited Advice Memorandum (TEAM). Only issues under the jurisdiction of the Associate Chief Counsel, Income Tax & Accounting, are eligible. The TEAM pilot procedures will remain in effect until Rev. Proc. 2003-2 is issued; if the pilot program is successful, Chief Counsel expects to expand it to cover other tax issues. The TEAM pilot program is intended to expedite certain aspects of the TAM process and to eliminate the taxpayer and field fact agreement process that may delay or frustrate the overall TAM process. Accordingly, Chief Counsel will provide an answer even if the taxpayer and the auditor disagree on the facts. The Office of Chief Counsel, in appropriate circumstances, may issue two separate answers: one based on the auditor's factual submission and the other based on the taxpayer's. However, the taxpayer and the IRS agent or appeals officer must agree that the issue is appropriate for the TEAM process; if not, the IRS will handle the issue under existing procedures. The IRS expects to issue TEAMs within 60 days. Currently, TAMs must be issued within 120 days, but approximately 40% of pending requests have not met that deadline, with some approaching one year. TEAM comments can be submitted to the IRS online at www.irs.gov , at the "Tax Regs" option, or mailed to: IRS If a TEAM provides alternate re-sponses based on separate sets of facts, the field will not be required to process the case on the basis of the TEAM's conclusions, as Rev. Proc. 2002-2 requires for a TAM.
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