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.
The question of whether an arrangement was a partnership or was a commission arrangement was the issue before the United States Court for the Southern District of Texas in the case of United States v. Stewart, et al, 116 AFTR 2d ¶ 2015-5159.
Read MoreAn important fact in dealing with the foreign earned income exclusion is that, per Reg. §1.911-7(a)(2)(i)(D), a taxpayer who fails to file his/her return more than one year after the original due date is risking the loss of the ability to exclude that income if the IRS discovers the fact that no election was made. In the case of McDonald v. Commissioner, TC Memo 2015-169 the taxpayer discovered she had made this costly mistake.
Read MoreOne significant tax law change contained in the Surface Transportation and Veterans Health Care Improvement Act of 2015 (STVHCIA) was the uniform reporting of basis for inherited assets. The act added IRC §6035 to require that an estate required to file an estate tax return must provide information to the IRS and beneficiaries regarding the basis reported.
Generally, the information must be provided to the IRS no later than by the earlier of 30 days after the date the Form 706 was required to be filed (including extensions, if any are granted) or 30 days after the Form 706 is actually filed by the estate. The law does authorize the IRS to move that date forward. The requirement applied to any estate that filed a return after July 31, 2015—which was the day this bill was signed into law.
In Notice 2015-57 the IRS has pushed the due date forward to February 29, 2016 for statements that would be due prior to that date under the 30 day rule found in the new law.
Read MoreDoes a county clerk need to issue a Form 1099MISC to attorneys when the clerk sends funds to an attorney in various circumstances? For the situations considered in Chief Counsel Advice 201533012 the IRS’s answer was no.
Information returns must be issued by payors in certain situations when payments are made to various parties.
Read MoreThe tax law doesn’t often work the way we like it to, and in the case of Tobias v. Commissioner, TC Memo 2015-164 the taxpayer’s argument that, when viewed as a whole he hadn’t really seen income from a series of transactions was not availing.
The taxpayer in this case was an attorney who held an inactive CPA license. In 2003 the taxpayers had purchased an annuity for $228,800. In order to buy the annuity the taxpayer had sold securities at a loss of $158,000. The taxpayers continued to make contributions to the annuity through 2006 of $346,154.
Read MoreThe Ninth Circuit in the case of Minnick v. Commissioner, 116 AFTR 2d ¶ 2015-5137, CA9, affirming TC Memo 2012-345 agreed with the Tax Court’s conclusion that in order to claim a deduction for a conservation easement under the provisions of IRC §170, holding that Reg. §1.170A-14(g)(2)’s requirement that any mortgage must be subordinated at the time of the gift.
IRC §1.170(b)(5)(A) permits a deduction for a conservation easement only if that interest is protected in perpetuity. The IRS regulation interpreting this rule holds that the protected in perpetuity rule may only be satisfied (and thus a deduction allowed) only if the mortgage holder subordinates its rights in the property to the rights of the donee organization to enforce the conservation easement.
Read MoreSometimes things just won't go away, and in this case developments continue in the case of the unauthorized access to the IRS's Get Transcript electronic site.
As was previously noted on this blog, the IRS on May 26, 2015 announced in a statement published on the agency’s web page that criminals had obtained access to information about 100,000 taxpayers via unauthorized use of the IRS’s “Get Transcript” application. In a similar number of cases the perpetrators had attempted to gain access but failed to do so. The information accessed included Social Security information, date of birth and street address.
On August 17, 2015 the IRS announced the problem was larger than initially revealed, indicating that further research had found that the number of taxpayers who had information accessed was now found to be 330,000—and, a similarly larger number of taxpayer accounts had unsuccessful attempts to access the data.
Read MoreThe marijuana cases continue in the Tax Court as a consequence of various state laws allowing for state (though not federal) legal sales of marijuana. In the case of Beck v. Comissioner, TC Memo 2015-149 another unique issue for such operations was addressed.
IRC §280E generally does allow deductions, aside from cost of sales, for a taxpayer selling a federally controlled substance such as marijuana, even if the that sale is deemed to be legal under state law. In this case, one key issue was what was considered a cost of sale.
Read MoreIn Announcement 2015-22 the IRS stated that it will not tax data breach victims on the value of the identity theft protection services provided by the organizations whose systems were compromised.
There have been a number of high data breech cases in the past few years, affecting major retailers like Target, insurers such as Anthem, and even the federal government’s own Office of Personnel Management. Generally these entities and organizations have responded to the incident by offering those whose information was or may be been disclosed various identity theft protection services.
Read MoreIdentity theft is an increasingly significant issue in the tax arena. As the preamble to TD 9730, discussed below:
Identity theft and refund fraud is a persistent and evolving threat to the nation's tax system. It places an enormous burden on the United States Government, with the most painful and immediate impact being on the victims whose personal information is used to commit the crime and the most pervasive impact being an erosion of public confidence in the tax system.
The tax refund fraud category of identity thieves most often make use of fictitious W-2’s to carry out the fraud. The W-2s most often make use of the name and employer identification number of an actual employer, along with the name and social security number of a real taxpayer. However, that taxpayer quite often has never worked for that employer or, if the taxpayer did, the amounts reported on the W-2 are not what was actually paid to the taxpayer.
Read MoreIn Program Manager Technical Advice 2015-11 the IRS National Office discussed the application of the §6662A penalty when a taxpayer fails to disclose a listed transaction.
Generally under §6662A, if the taxpayer has an understatement related to a reportable transaction, a 20% penalty will apply to that understatement. However, under §6662A(c), if the taxpayer did not disclose the reportable transaction as required by IRC §6664(d)(2)(A) the penalty increases to 30%.
Read MoreFinal regulations have been issued (TD 9729) to eliminate what some had claimed was a method that could allow the use of a charitable remainder trustto allow a donor to gain a charitable deduction, have the trust sell off the appreciated assets, acquire new high basis assets and then allow the grantor to sell off his retained interest (the right to future payments from the trust) while recognizing no or very little taxable gain.
Read MoreThe IRS has announced that it is pushing back for one year the date on which it will begin accepting applications for entities to be classified as a certified professional employer organization under IRC §§3511(a)(1) and.7705.
These organizations, created as part of the Achieving a Better Life Experience (ABLE) Act of 2014, would provide protection for employers who use such organizations regarding the payment of payroll taxes. Employers generally are responsible for the deposit of taxes withheld from their employee’s payroll and, prior to this provision, that responsibility could not be shifted to another party.
Read MoreIn the consolidated cases of Charles Sophy v. Commissioner and Bruce Voss v. Commissioner, 138 TC No. 8, the Tax Court concluded that the $1,000,000 and $100,000 debt limitation on the deduction of home mortgage interest applies on a per residence, and not per taxpayer, basis. However, on appeal a divided Ninth Circuit Court of Appeals appeals reversed the Tax Court’s decision (Docket Nos. 16421–09, 16443–09)
Read MoreIn the case of Escalante v. Commissioner, TC Summary Opinion 2015-47, a taxpayer attempting to claim real estate professional status presented records to show he met the real estate professional status so that his losses could be claimed.
Read MoreA tax preparation firm discovered that its preparation of a tax return ended up being treated as part of a promotion of an illegal tax shelter by its liability insurance carrier, which meant the carrier refused coverage when clients sued the firm when the IRS came after the programs. The Sixth Circuit’s decision in the case of Financial Strategy Group, PLC v. Continental Casualty Company, CA6, Docket No. 14-6296, 2015 TNT 152-16 may prove surprising to some since it turns out the firm did not have the protective net it thought it did against these claims.
The firm in this case prepared LLC returns for two clients who had been convinced by financial advisers with a national accounting firm (which is not the firm in this suit) to enter into a program to buy and sell distressed debt that the national firm advised them would reduce their tax bills. For the year they entered into the program the national firm prepared the LLC tax return for the partnerships through which these investments were held.
Read MoreThe IRS has issued Notice 2015-54 where the agency announced it was going to be issuing regulations under IRC §721(c) that would override the general non-recognition rules of IRC §721 in a situation where a U.S. partner transfers property to certain partnerships with foreign partners. As well, the IRS will issue related regulations under IRC §482 to grant the IRS additional authority in such situations to revise the income recognition.
Generally a taxpayer who contributes property to a partnership under IRC §721 does not recognize income on that contribution. However, under §704(c)(1)(A) the partnership must allocate items to take into account the difference between the fair value and basis at the time of contribution.
Read MoreDoes the fact that the IRS dropped an issue for an earlier year preclude them from raising the same issue in a later year? And does it make a difference if the Tax Court entered a decision after the parties had come to an agreement that no tax was due outside the Tax Court?
These issues were important in the case of Dinger v. Commissioner, TC Memo 2015‑145. Ms. Dinger was a German citizen who was married to a United States citizen for 50 years. She and her husband had made a §6013(g)(1) election to treat Ms. Dinger as a United States resident.
Read MoreIn the case of Kline v. Commissioner, TC Memo 2015-144 the question before the Tax Court was whether the taxpayers in this case met the requirements to be treated as materially participating in the activity.
Specifically the question was whether they had met the requirements of Reg. §1.469‑5T(a)(3) for the “more than others” test for material participation.
Read MoreIn the case of Waterhouse v. United States, United States Court of Federal Claims, 116 AFTR 2d ¶2015-5080 a corporate officer and holder of a 40% interest in the company’s stock argued that he was not a responsible person under IRC §6672 because he and another officer had agreed to divide up the responsibilities.
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