Keeping CPAs Up to Date on Tax Matters
A site devoted to articles on current developments in federal taxes geared toward CPAs in tax practice.
In the case of Center for Competitive Politics v. Harris, 115 AFTR 2d ¶ 2015-703, CA9, No. 14-15978 the Ninth Circuit Court of Appeals affirmed a District Court’s denial of the plaintiff’s request for a preliminary injunction requiring providing to the California Attorney General an unredacted list of donors from Schedule B, Form 990 of a §501(c)(3) organization.
Read MoreA debt collection agency did not mislead debtors by failing to inform them that compromising a debt could have tax consequences according to the Second Circuit Court of Appeals in the case of Altman v. J.C. Christensen & Associates, Inc., 2015 TNT 94-13, CA2, No. 14-2240. Thus there was no basis for the claim that the collector had violated the Fair Debt Collections Practices Act (FDCPA).
Read MoreIn the case of Johnston v. Commissioner, TC Memo 2015-91, the IRS argued that the taxpayer failed to report cancellation of debt income in 2007, leading to a tax liability.
The question of whether a debt has been cancelled for the purposes of federal tax law depends on the showing that a debt will never be repaid, taking into account any identifiable event that establishes this fact. The Tax Court cited the case of Cozzi v. Commissioner, 88 T.C. 435 to support the above analysis.
Read MoreUpdate - see our discussion of Ninth Circuit's reversal of a similar case in July of 2015, two months after the Tax Court issued this opinion
A taxpayer that makes a “qualifying offer ” in a tax dispute may receive an award of litigation costs if a judgment in the case subject to litigation ends up being less than the amount of qualifying offer. The case of Angle v. Commissioner, TC Memo 2015-92, looks at this issue in a tax matter that ended up with multiple proceedings (four cases, including this one).
Read MoreThe treatment of incentive stock options that have been exercised when the employer is acquired during the one year period following exercise of the options is discussed in Chief Counsel Advice 201519031. The key issue is whether the transfer of the shares in the employer for interests in the acquiring company will constitute a disqualifying disposition. And, as with all good tax questions, the answer is “it depends.”
Read MoreThe IRS looked into the application of the preparer penalties under §§6694 and 6701 in various circumstances in Chief Counsel Advice 201519029. The memo was produced to answer queries about whether the IRS is able to assert the §6694 penalty in two cases, as well as whether it was appropriate to assert either penalty under §6694 or the penalty for aiding and abetting under §6701 in another situation.
Read MoreWhat is the proper tax treatment if a manufacturer uses precious metals in a process where some or all of metal will be recovered by the manufacturer? May the manufacturer claim depreciation on any of the cost of that metal? That was the issue addressed by the IRS in Revenue Ruling 2015-11.
Read MoreDoes filing a tax return that reflects a tax liability of $0.00 represent the filing of “a return for a preceding taxable year showing a liability for tax”—or, to put it simply, is $0 a liability for tax? That was the issue that the U.S. District Court for the Central District of California addressed in the case of Cal Pure Pistachios, Inc. v. United States, 115 AFTR 2d ¶2015-643.
The issue was whether the taxpayer, a C corporation, could escape a penalty for underpayment of estimated taxes using the “prior year’s tax” exception under IRC §6655(d).
Read MoreIn Chief Counsel Advice 201518013 the IRS decided that an employer’s attempt to reform a non-qualified deferred compensation plan that failed to comply with the time and form of payment requirements of IRC §409A(a), even though the plan was revised to contain compliant language prior to date in the tax year where the taxpayer no longer had a substantial risk of forfeiture.
Read MoreIn Revenue Procedure 2015-30 the IRS provided updated numbers for 2016 for health savings accounts and the related high deductible health plans.
Read MoreThe IRS has updated the list of private delivery services that are eligible for the “timely mailing” protection found in IRC §7502 in Notice 2015-38.
IRC §7502 governs the methods taxpayers can use to be treated as timely filing documents with the IRS when they do not arrive at the related service center on or before the last date for filing the document. Generally the rule provides that the postmark date on a document mailed to the IRS will be considered the date of delivery of the document to the IRS or date of payment for payments. [IRC §7502(a)]
Read MoreThe IRS announced in Notice 2015-10 that the agency plans to issue regulations that will deny refunds to individuals subject to the foreign withholding rules under IRC §§1441-1443 (chapter 3) or §§1471 and 1472 (chapter 4) if the withholding agent fails to deposit the taxes that are withheld. The IRS justifies this change by noting that the IRS is aware some withholding agents have failed to pay the taxes due and that because the party from whom the tax was withheld and, in some cases, the withholding agent, are outside the United States, the IRS may not be able to recover the taxes if it pays the refund.
Read MoreThe question of what qualifies for the “reasonable cause” exception to the gross valuation misstatement penalty under IRC §6662(h)(1) was the issue before the First Circuit in the case of Kaufman v. Commissioner, Docket No. 14-1863, CA1, affirming TC Memo 2014-52. This was the second time the Kaufmans had appealed an adverse Tax Court decision on this issue to the First Circuit, but the result wasn’t as favorable this time.
The Tax Court, on remand, determined that the value of the facade easement was zero and, given that, went on to decide that the taxpayers were subject to the penalty due to a gross valuation misstatement given the proper value was zero. Finally, and the issue we are interested in at this point, the court found that the taxpayers did not qualify for the relief granted to taxpayers from the penalty under the reasonable cause relief provision for this penalty found at IRC §6664(c).
Read MoreThe situation the taxpayer faced in the case of Morris v. Commissioner, TC Memo 2015-82 is one that will be all too familiar to many of us—a case of a taxpayer doing something unaware of the negative tax consequence. It also is a case of a client reading more into advice received than the adviser expected the taxpayer would do—and, again, with negative consequences.
The result in this case should not be surprising to any tax adviser reading this—Elroy was the primary and sole beneficiary of his father’s IRA. Elroy received a distribution of his father’s IRA as he was the sole beneficiary of the IRA. But his father had indicated that he wanted a portion of the IRA to be shared with Elroy’s two siblings, so he paid checks to them for $37,000.
Read MoreA taxpayer’s liability for self-employment tax related to income from working interests in oil and gas wells was the issue in the case of Methvin v. Commissioner, T.C. Memo 2015-81.
This is not a case of David being out there drilling for oil—rather, he had simply been acquiring working interests in several oil and gas ventures as investments. His interests were never more a small amount in each venture. David’s interactions were basically to invest funds and then receive his checks for his share of revenues less expenses. He did not perform any services with regard to the wells.
Read MoreSome states provide for a “buy-in” to the equivalent of the state’s Children’s Health Insurance (CHIP) program by individuals who have income exceeding the eligibility levels for the actual CHIP program. A question had arisen about whether such individuals would be disqualified from eligibility for the premium credit under IRC §36B due to having access (albeit often at full, unsubsidized cost) to a CHIP-like program.
Read MoreDealing with the interaction of various statute of limitation rules can be complex that it appears at first and, in the situation described in Chief Counsel Advice 201517005, the IRS concluded that the taxpayer could not take full advantage of amending a return to change from claiming a foreign tax credit to claiming a deduction for foreign tax paid when that change to the prior return created a net operating loss required to be carried back.
Read MoreThe IRS appears to have recognized that corporations who have tax issues with the IRS may also have problems with state taxing agencies. The IRS also noticed that, in California, the Franchise Tax Board has the right to suspend a corporation's powers, rights and privileges for failure to pay California state taxes.
One of the lost privileges is the privilege to file suit, an issue we have previously discussed in our post last month on Medical Weight Control case. The fact that the taxpayer had its corporate status retroactively restored was ruled, by the Tax Court, did not serve to retroactively grant a right to file suit in Tax Court.
Read MoreUnder IRC §274(d) taxpayers are denied any deduction for certain expenses if they do not maintain adequate contemporary documentation to support the expense, even if it is obvious that the taxpayers must have incurred the expense and the amount of expense could be reasonably estimated. This rule was put into the IRC to override the “Cohan” rule, so called due to the case involving George M. Cohan where the Second Circuit ruled that documentation is not needed if it is clear a taxpayer incurred an expense and it can be reasonably estimated [Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).
The IRS claimed in the case of Ressen v. Commissioner, TC Summary Opinion 2015‑32 that the taxpayer’s records documenting his use of two vehicles, for which he claimed a 100% business use deduction on each, was inadequate. However the Tax Court did not agree with the IRS on this issue.
Read MoreIf a U.S. citizen is a flight attendant based out of Hong Kong, can she exclude all of her income using the foreign earned income exclusion under IRC §911? The taxpayer in the case of Rogers v. Commissioner, Docket No. 13-1241, CA DC Circuit took that position—but neither the Tax Court nor the Court of Appeals for the DC Circuit agreed with her.
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