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.
As a tax-exempt organization it’s a bad situation to lose your exemption for a failure to file the required tax forms for three consecutive years. But, as the association that requested reinstatement of their status as a §501(c)(6) organization discovered in PLR 201622033, it’s worse to discover that the IRS believes you never really were qualified to be treated as such an organization.
Read MoreWhether or not certain payments made to employees who participated in an employer’s wellness program was discussed in CCA 201622031.
The memorandum was looking at programs that attempted to differentiate themselves from the program described in Revenue Ruling 2002-3.
Read MoreIn Revenue Procedure 2016-32 the IRS announced a reduction in the 2016 user fee for certain exempt organization applications effective July 1, 2016.
The fee for organizations filing Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code will be reduced from $400 to $275.
Read MoreEarlier this month we had reported (see Policy Change Means IRS Will No Longer Initiate Audit Contact With Taxpayers Via Phone) that the IRS, responding to complaints at a Taxpayer's Advocate forum in Iowa, had pledged to implement a new policy where the agency would no longer contact taxpayers by phone to initiate tax exams.
Read MoreOne thing you can say for scammers—they react quickly as people become aware of one form of scam and move on to vary their approach so the mark is now confused that this call might be a real issue. In News Release `IR-2016-81 the IRS noted that scammers have now moved on to making dunning calls for a non-existent tax, not just a non-existent tax bill.
In the latest scam to be described by the IRS, the caller claims the taxpayer has an unpaid “student tax” for which payment must be made immediately. In one sense this sort of attack is a stroke of genius, since there are individuals that owe taxes, student loans or both, so this sort of confused combination likely dupes people who now are no longer sure what is being asked for. As well, actual students often are used to interacting with the tax system, and so won’t as quickly recognize that the IRS simply doesn’t function in that manner.
Read MoreThe Eleventh Circuit Court of Appeals found that payments received by a former independent Mary Kay beauty consultant under a nonqualified plan after her retirement was subject to self-employment tax (Petersen v. Commissioner, CA11, Nos. 14-15773, 14-15774, aff’d TC Memo 2013-271).
The Mary Kay plan in question had been modified in 2008 in response to the addition of IRC §409A by Congress. In doing so, the plan documents now clearly referred to the plan as being one granting nonqualified deferred compensation to the participants to be paid after they retired.
Read MoreSince the Supreme Court had changed how the validity of a regulation was determined in the case of Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44 (2011), the taxpayer in Santos v. Commissioner, TC Memo 2016-100 decided to challenge a regulation on the books since 1967.
Mr. Santos, an enrolled agent with a master’s degree in taxation, decided to attend law school, graduating in 2011 and was admitted to practice law in the state of California in 2014. Mr. Santos sought to claim a deduction for the $20,275 he had paid in 2010 for tuition and fees in attending law school.
Read MoreThe IRS finalized regulations [TD 9769 modifying Reg. §1.402A-1 A-5(a)] that were issued in proposed form in 2014 that eliminates the requirement that each disbursement form a designated Roth account that is directly rolled over to a retirement plan be treated as a separate distribution from any amount paid directly to the employee. Prior to the change if an employee had a direct rollover and an amount directly paid to the employee, each one would receive a separate allocation of pretax and after-tax amounts to each distribution.
Read MoreTreaties between the United States and other countries provide for special rules that will potentially override the standard tax treatment found in the Internal Revenue Code. The taxpayer in the case of Cole v. Commissioner, TC Summary Opinion 2016-22 believed he had found a provision that would remove from tax the gain on sale of stock he had disposed of following becoming a permanent resident of Israel.
Mr. Cole in the year in question was both a United States citizen and a permanent resident of Israel. He had purchased shares of Neogen Corporation prior to moving to Israel. After moving to Israel he sold those shares for a net gain of $114,947.
Read MoreIn the case of Terry v. Commissioner, TC Memo 2016-88, the taxpayer was disputing paying $550 in taxes that represented the increase in taxes shown as due on the amended return he had filed.
That might seem usual, since Mr. Terry had admitted he had understated his 2011 taxes by $550. However, Mr., Terry pointed out that his original return had shown a refund due of $1,745 and, in fact, the IRS had not yet sent those funds to him or applied them against taxes for another year.
Read MoreThe IRS in a memorandum issued by the Small Business Self Employed Division (SBSE-05-0416-0016) has outlined how the agency will approach requests for offers in compromise for businesses that cultivate and sell marijuana in states where state law makes such activities lawful.
The memorandum will supplement procedures found in the Internal Revenue Manual at IRM 5.8.5 (Offers in Compromise—Financial Analysis) and 5.8.7 (Offers in Compromise, Return, Terminate, Withdraw, and Reject Processing).
Read MoreUnder IRC §162, generally deductions are allowed for “ordinary and necessary” business expenses. However, the IRS is known to pay special attention to any such expenses paid to related parties, which was the IRS’s concern in the case of H. W. Johnson, Inc. v. Commissioner, TC Memo 2016-95. In this case the IRS was questioning both compensation paid to two corporate officers and payments made for “administration fees” to an LLC owned by the same two officers.
While the IRS believed the amounts were not justified in either case, the Tax Court did not agree, finding instead that the corporation had justified the amounts paid as reasonable ordinary and necessary expenses.
Read MoreIn the case of Kunkel, et, al v. Commissioner, Case No. 15-2232, the Seventh Circuit affirmed the Tax Court’s decision in the case of Hartland Management Services, et al v. Commissioner, TC Memo 2015-8.
Read MoreAfter practitioners in Iowa complained in a meeting with Taxpayer Advocate Nina Olsen about the IRS initiating audits in that state via phone contact with taxpayers that was reported by Tax Notes, the IRS has decided to change that policy.
Practitioners had complained that such IRS contacts via phone were confusing to clients whom they had warned about fraudulent calls from people claiming to be with the IRS demanding payment, citing IRS statements that the “IRS doesn’t call first” with regard to such collection cases.
Read MoreThe a majority of the panel from the Third Circuit Court of Appeals determined that the Tax Court had misapplied the all events test in the case of Giant Eagle, Inc. v. Commissioner, Case No. 14-3961, CA3, reversing TC Memo 2014‑146.
Read MoreWhen the IRS issued the list of automatic accounting method changes as a separate Revenue Procedure in Revenue Procedure 2015-13 in early 2015 rather than as an appendix to the general Revenue Procedure in accounting method changes, the clear implication was that this would allow the IRS to issue a comprehensive list of changes on a more regular basis. Revenue Procedure 2016-29 is the first time the IRS takes advantage of this structure, creating a comprehensive list of automatic changes, update for new automatic changes issued since Revenue Procedure 2015-13, superseding that procedure and incorporating changes made since the issuance of that procedure.
Following the issuance of Revenue Procedure 2015-13, the IRS had issued modifications/additions to the automatic list in Revenue Procedures 2015-33 and Revenue Procedure 2016-1. Thus to obtain the complete list of automatic changes and current rules an adviser would need to check Revenue Procedure 2015-13 along with those changes.
Read MoreThe IRS has issued temporary (TD 9768, Regs. §§301.7705-1T and 301.7705-2) and proposed regulations (REG-127561-15, Proposed Regs. §§31.3511-1, 301.7705-1 and 301.7701-2) that will govern the Certified Professional Employer Organization (CPEO) program that Congress enacted as IRC §7705 at the end of 2014 as part of the ABLE Act of 2014. The program, which was supposed to begin accepting applicants in the summer of 2015 will actually begin accepting applications on July 1, 2016.
As part of the release of the regulations, the IRS also announced the agency’s intent to release a pair of Revenue Procedures, one outlining the application process to become a PEO and another detailing the ongoing requirements to maintain certification.
Read MoreTurns out that typos happen in the federal government and one affected a document we had discussed earlier this week (Partners May Not Be Treated As Employees of Disregarded Entities Owned by Partnership).
After the original article was published here on the new regulations on disregarded entities owned by parterships and self-employment status, the Federal Register website noted that the original article had an error in it where “May 4, 2019” was accidentally substituted in the originally published copy of the regulation. In reality those dates should have been May 4, 2016. The original post on this site was based on the original notice before the document was changed.
Read MoreIf a partnership owns an LLC it treats as a disregarded entity under the check the box rules, may partners of the partnership be treated as employees of the disregarded entity, receiving a W-2 and obtaining certain tax beneficial fringe benefits open to employee but not partners? The IRS says the answer has always been no, but since some read the existing regulations otherwise the agency has issued Temporary Regulation §301.7701-2T(e)(8)(i) (TD 9766) and an identical proposed regulation (REG-114307-15).
The “check the box” provisions found in Reg. §301.7701-2 were created to deal with state law entities that had no direct equivalent under federal law (with the prime example being limited liability companies (LLCs)). Under those rules, the taxpayer elects to treat the entity “as if” it was an entity the IRC has a treatment for, picking from a list that depends on the number of owners.
Read MoreThe IRS had denied §6015(f) innocent spouse relief to Joseph Boyle in the case of Boyle v. Commissioner, TC Memo 2016-87 since the interest and penalties from which he sought relief were directly related to income from his sole proprietorship. But the Tax Court did not agree given the facts of the case.
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