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 Social Security Administration has provided on the Employment Coverage Threshold page on their website, information on the coverage threshold levels for domestic workers in 2016. The threshold will increase to $2,000 in 2016 from the $1,900 that had been the amount for the prior two years.
The Social Security Administration announced in an October 15, 2015 news release that the maximum amount of earnings subject to Social Security tax in 2016 will remain unchanged at $118,500 that applied for wages paid in 2015.
Read MoreIn the case of DJB Holding Corporation v. Commissioner, 116 AFTR 2d ¶ 2015-5313, CA9, the Ninth Circuit Court of Appeals upheld a Tax Court decision that since no partnership existed, the entire income that had been reported on the partnership return should instead be reported on the return of the claimed 30% partner of the operation, a C corporation.
Read MoreWhile the case of DJB Holding Corporation v. Commissioner, 116 AFTR 2d ¶ 2015-5313, CA9, principally involved the issue of the lack of existence of a purported partnership (which is discussed elsewhere), there was another issue of interest.
The taxpayers in question had sold the assets of a C corporation owned by a partnership that was itself owned by two S corporations that the individuals controlled via ESOPs. The agreement had provided that $3.4 million of the sales price represented an agreement not to compete.
Read MoreThe Court of Federal Claims concluded something all of us learned early on—“suboptimal tax laws are still valid tax laws” in upholding the taxation of deferred compensation in 2004 for a taxpayer that was clear even when included in the employee’s income would never be paid in the case of Balestra v. United States, 113 AFTR 2d ¶2014-887.
The taxpayer in this case was a pilot for an airline who retired in 2004. The airline in question entered bankruptcy in 2002. In 2004 Mr. Balestra retired from the airline.
Read MoreIn IRS Information Letter 2015-0026 a taxpayer discovered that sometimes when the IRS changes its mind in what appears to be a taxpayer favorable fashion, taking advantage of that relief may introduce its own complications, in this case triggering the excess contributions tax of IRC §4973.
In this case the taxpayer had received Medicare waiver payments as a caregiver. In Notice 2014-7 the IRS had determined that such payments were excludable from income and allowed taxpayers to amend their returns to take advantage of this change in position.
Read MoreIn Chief Counsel Advice 201540013 the IRS was asked to rule on a situation involving a pawnbroker and whether or not the pawnbroker would be required to file a report under IRC §6050I for cash transactions under a specific situation.
Read MoreIn most cases where the tax provides for adjustments to various factors that are important in the tax year to be adjusted annually we have to deal with constant change. However in Notice 2015-65 the IRS gave us an “updated” number that, for the fifteenth straight year, has remained unchanged.
Read More[Revision - February 5, 2016. At the request of the taxpayers involved we have removed the names of the individuals from the Tax Court opinion paragraph cited below.]
A number of bad consequences will follow from the IRS finding that a purportedly qualified retirement plan wasn’t actually qualified. In such a case the trust will generally be treated as a taxable entity rather than a tax exempt one. As such, the IRS does not often take this drastic step, but it did in the case of DNA Pro Ventures, Inc. v. Commissioner, TC Memo 2015-195.
The corporation argued that the IRS action was an abuse of discretion in this case, but the Tax Court did not agree.
Read MoreIn Chief Counsel Advice 201540012 the IRS held that a corporation had not made a proper informal refund claim and thus the statute of limitations had expired.
The situation involved a dispute between a corporation and the taxing agency of a foreign government. The IRS, referring to years by “Y” and numbers indicated that the questions involved years Y1, Y2 and Y3. In year Y12 the corporation settled the dispute with the foreign government.
Read MoreIn SBSE-04-0915-0058 on “Procedures for Required Filing Checks and Scope of Employment Tax Examinations” the IRS outlined revised procedures to be followed by agents conducting payroll tax examinations.
The four-page memo contains changes that will be made to the Internal Revenue Manual IRM 4.23.3.7.4. Agents are instructed to follow the memorandum in the interim until those changes are placed in the manual.
Read MoreFred Cooper lent money to various individuals, including specifically Wolper Construction, Inc. a real estate development business. In the case of Cooper v. Commissioner, TC Memo 2015-191 the Tax Court had to decide if Mr. Cooper could take a deduction for a bad debt in either 2008 or 2009.
IRC §166 governs the deduction of bad debts for taxpayers. Differing rules apply depending on whether the debt in question is a business bad debt or is not one. Generally business bad debts represent ordinary losses and a deduction can be claimed on a debt that becomes partially worthless. A nonbusiness bad debt is deductible as a short term capital loss and for entities other than corporations per Reg. §1.166-5(a)(2), only deductible in the year in which the debt becomes wholly worthless.
Read MoreThe taxpayer in the case of American Milling, LP v. Commissioner, TC Memo 2015-192 argued that the Tax Court lacked jurisdiction to hear the case where the IRS would ultimately push a tax assessment down to a real taxpayer.
Read MoreIn the case of Okonkwo v. Commissioner, TC Memo 2015-181, the taxpayer argued that he should be able to claim a loss on the rental of a property to his daughter at a below market rental rate because their homeowner’s insurance policy required the property to be occupied.
Read MoreMr. Dunnigan would discover, in the case of Dunnigan v. Commissioner, TC Memo 2015-190 that merely because your bank and an IRS employee told you there wouldn’t be tax due on a cancellation of debt, that doesn’t mean there actually won’t be tax due.
Mr. Dunnigan had taken out a $50,000 line of credit for his business in 2008. In 2009 Mr. Dunnigan found he was unable to pay off the line of credit, so he negotiated an agreement with the bank where the bank would take $15,628 in full satisfaction of the debt in question.
Read MoreIn the case of Precision Dose v. United States, 116 AFTR 2d ¶ 2015-5272, the United States District Court for the Northern District of Illinois, Western Division looked into whether a company qualified for the domestic production deduction under IRC §199.
Read MoreAn IRS Tax Court victory in the case of Morehouse v. Commissioner, ( original decision at 14 TC No. 16), was overturned on appeal in a split decisions by a panel of the Eighth Circuit in Case No. 13-3110, 114 AFTR 2d ¶ 2014-5340.
The case in question involved whether payments received under the U.S. Department of Agriculture’s Conservation Reserve Program (CRP) represented income subject to the self-employment tax.
Read MoreThe attorney for the taxpayer in the case of Tilden v. Commissioner, TC Memo 2015-188 prepared the petition for the taxpayer’s Tax Court case on the last day for the petition to be filed. The petition was sent to the IRS via certified mail.
So far all appears well, except the attorney used an online postage service (Stamps.com) to print the certified mail postage and supporting documents. That’s not itself a problem except that the rules regarding “timely filing” provide protection not simply for filing by certified mail.
Read MoreThe Tax Court, expanding on its earlier decision in the case of Estate of Belmont v. Commissioner, 144 TC No. 6, found that an estate which did not (unlike Belmont) end up spending a portion of the funds supposedly set aside for charity still failed to meet the requirements of §642(c) to have permanently set aside funds for charity due to a pending legal dispute.
In the case of Estate of DiMarco v. Commissioner, T.C. Memo. 2015-184 the Court found that the estate was aware of a potential contest by both the end of the tax year where it attempted to claim to have set aside the funds and by the date the return was actually filed. The potential dispute over the estate could reasonably be expected to require an expenditure of estate funds and it more than than remotely possible that the expenditure could be substantial.
Read MoreFinal regulations (TD 9739) have been published by the IRS detailing the requirements for a transaction to be deemed a tax free F reorganization under the provisions found at IRC §368(a)(1)(F).
An “F” reorganization is defined as “a mere change in identity, form, or place of organization of one corporation, however effected.” [IRC §368(a)(1)(F)] A corporation that is the survivor of an F reorganization takes over all of the attributes of its predecessor and is, for all practical purposes, treated as the same corporation as the predecessor for federal tax purposes.
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