2023 Marcum Year-End Tax Guide

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THE MARCUM YEAR-END TAX GUIDE 2023

• The US Supreme Court has refused to review the Sixth Circuit decision in Oakbrook Land Holding LLC v. Commissioner , which supports the Service’s regulations on conservation easements on the extinguishment clause as not violating the APA. This circuit court agrees with the Tax Court but conflicts with the Eleventh Circuit Court holding in Hewitt v. Commissioner. However, it is unclear in the Hewitt case whether the regulation is considered invalid in total or only for the transfer documents before the court. • The Service issued Notice 2023-30 under the direction of the SECURE 2.0 Act, which instructed Treasury to provide safe harbor language dealing with the Extinguishment Clause and the Boundary Line Adjustment Clause for conservation easements. The Service offered safe harbor language and allowed those who had transferred eligible conservation easements to take advantage of these provisions by correcting prior deeds and having the corrected deeds signed by both donor and recipient and recorded by July 29, 2023. Concerning the Extinguishment Clause language, the safe harbor language follows the existing regulation, which provides that upon a subsequent transfer of the property (due to it being incapable of use for its original conservation purpose), the charity must get a pro rata

share of the proceeds based on the relative values of the interests determined on the date of contribution. CRYPTOCURRENCY In addition to the Chief Counsel Advance dealing with the contribution of cryptocurrency being subject to the qualified appraisal rules (discussed above), there were some other developments relating to cryptocurrency. In Rev Rul 2023-14, the IRS provided formal guidance on the taxation of cryptocurrency staking. The consequences were uncertain after the Jarrett case. In that case, the taxpayers filed an amended return claiming a $3,793 refund caused by eliminating $9,407 of income reported from cryptocurrency staking. When the IRS did not respond to the refund claim, the taxpayer filed a complaint in the US District Court of Tennessee. The Service ultimately issued a check for the refund based on the direction of the Tax Division of the US Department of Justice, but the taxpayers refused to accept the payment. Since the Service had paid the claim, the court found that there was no longer a live controversy and dismissed the case. The taxpayer appealed to the Sixth Circuit Court of Appeals, but Congress asked the IRS to provide guidance. The Service issued this notice in response. Building on its position that cryptocurrency is essentially property, the IRS determined that

the holder staking cryptocurrency is receiving a reward that constitutes an accumulation of wealth meeting the traditional definition of income. The amount received for staking is more than an increase in value to previously owned property. It is additional property. However, the ruling does note that if there are restrictions on the ability of the holder to sell, exchange, or otherwise dispose of any of the units received, the taxation event should be deferred until these limitations are gone. In Chief Counsel Advice 202302011, the hypothetical scenario was considered where cryptocurrency had little value at year-end (e.g., $01 per coin). The Service says that no loss is allowed under these circumstances since the taxpayer still owns the cryptocurrency, so there has been no identifiable event to establish a loss. Under the facts discussed under the CCA, there would be no abandonment since no action was taken to demonstrate this action. However, even if there were an abandonment, the Service concludes that this would need to be reported as a miscellaneous itemized deduction, which is not allowed under the TCJA for 2018 through 2025. PARTNERSHIPS In an interesting case, the Tax Court held that in a tiered structure, a partner could receive a profits interest in the upper-tier entity even though services were performed only for the lower-tier entity, ES NPA Holding LLC v. Comr. The

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