Tax Court Upholds Constitutionality of Rule Prohibiting Deductions for Marijuana Businesses

By:  Amanda Wilson

I recently wrote about the Tax Court decision in Northern California Small Business Assistants Inc. v. Commissioner, which addressed whether Section 280E’s denial of tax deductions to marijuana businesses violates the Eighth Amendment as an excessive penalty.  While the Tax Court upheld the constitutionality of Section 280E, the dissenting opinions provided hope for future challenges.  The discussion can be found here.

Don’t Forget to File Your Foreign Bank Account Return

By:  Amanda Wilson

If you have a foreign bank account (or signatory authority on a foreign bank account), you are required to file a Form 114 (commonly called an FBAR) if at any point during the calendar year the combined balance in all of your foreign accounts exceeds $10,000.  Failure to file the FBAR can result in hefty penalties and even criminal charges.  I previously discussed FBARS here.

Why am I bringing this up again?  Because the filing deadline was moved from June 30th to April 15th, and the government granted all filers an automatic 6 month extension to October 15th.  So if you have not filed your FBAR yet, make sure you do so before October 15th.  The form is filed electronically here.

IRS Finalizes Real Estate Safe Harbor for 20% QBI Deduction

By:  Amanda Wilson

Section 199A introduced a 20% deduction for qualified business income (previously discussed here).  To qualify for the deduction, income must be from a trade or business.  Whether rental activity rises to the level of a trade or business can often be a difficult question to answer.  In Revenue Procedure 2019-38 (found here), the IRS finalized the safe harbor previously proposed in Notice 2019-07.  This safe harbor provides a rental real estate enterprise will constitute trade or business for Section 199A purposes if the enterprise performs 250 or more hours of rental services during the year.  Any enterprise wishing to fall within this safe harbor must maintain records such as a time log or calendar documenting the services.  If the real estate is rented under a triple net lease, the safe harbor is not available.

The revenue procedure provides a helpful safe harbor, but it is important to note that it is only a safe harbor.  The fact that a real estate business cannot satisfy the safe harbor does not mean that it might not otherwise qualify as a trade or business for Section 199A purposes.