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.
With the growth of the “sharing economy” involving organizations like Uber and Airbnb, the IRS has determined there is a need for guidance for individuals who are involved in providing such services.
Many of these individuals have not previously operated a business, nor may they even realize that they truly are operating a business that will trigger special tax issues and obligations.
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Read MoreA taxpayer who was unable to establish the basis of his stock in an S corporation found himself stuck with paying tax on distributions from the corporation in the case of Power et ux. v. Commissioner, T.C. Memo. 2016-157.
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Read MoreEarlier this summer the IRS, in restarting various electronic programs where unauthorized persons had established accounts to access taxpayer data or obtain reissued IP-PINs to file fraudulent returns, the IRS had added new procedures that included a requirement that a taxpayer establishing an account had a post-paid cellular phone.
After the Social Security Administration received complaints that many seniors did not have cell phones to be used for a similar program, that agency backed off the cell phone requirement. Now the IRS also modified the phone requirement to access certain online tools.
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Read MoreIn Revenue Procedure 2016-43 the IRS provided the 2016 monthly bronze premium amounts for use in computing the premium based limitations on the shared responsibility payments under IRC §5000A.
A shared responsibility payment is generally due for each month that a person fails to have minimum essential coverage for himself or herself or an individual they are eligible to claim as a dependent for tax purposes.
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Read MoreThe IRS is proposing to increase fees for entering into installment agreements and add new levels for determining a fee in proposed regulations (REG-108792-16). The proposed changes would take effect on January 1, 2017.
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Read MoreThe non-profit corporation in United States v. Detroit Medical Center, CA6, Case No. 15-1279, received a refund of payroll taxes along with interest on that overpayment from the IRS. However, the organization was dismayed to find that it had been interest at a lower rate than it had expected to be paid.
The IRS noted the group of hospitals was organized as a corporation under corporate law and paid the lower rate of interest provided in IRC §6621(a)(1) for a “large corporation.”
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Read MoreIn the case of Nebeker v. Commissioner, TC Memo 2016-155 a taxpayer had changed its method of reporting payments for independent contractors in 2004. That sets up a case where the IRS would prevail—but perhaps in the end it might end up with a result that reduced the taxpayer’s tax for the year in question.
The taxpayer had operated a business since 1995. In his business he would bill clients (often governments) for his work and various expenses incurred, including the expenses related to payments to independent contractors.
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Read MoreAs we are all aware, the Internal Revenue Code imposes penalties for the late filing of a tax return (IRC §6651(a)(1)) as well as for the late payment of taxes due on a return (IRC §6651(a)(2)). The penalty does not apply, though, in either case if the failure is due to “reasonable cause and not due to willful neglect.” In the case of Rogers v. Commissioner; T.C. Memo. 2016-152 the Tax Court found that the taxpayer had such reasonable cause when she mistakenly believed she was not required to file a return, and such a mistaken belief was found to be reasonable in her case.
As the Court notes in this case, “reasonable cause” is inherently very much a facts and circumstances situation and merely believing no return is required to be filed is not sufficient in and of itself—rather, the taxpayer must have arrived at this conclusion via a good faith effort to determine his/her responsibilities under the tax law. But the taxpayer’s overall situation and their level of sophistication are taken into account to see if the taxpayer’s conduct meets the reasonableness standard.
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Read MoreIn order to claim deductions related to a trade or business, the taxpayer must be able to show not just that the expenditures were incurred by the taxpayer for a legitimate trade or business reason, but also that the trade or business in question has actually begun operation. The IRS was not disputing that the taxpayer had an honest intent to operate a trade or business for which she incurred expenses, but rather that the business had not commenced operations in the case of Tizard v. Commissioner, T.C. Summ. Op. 2016-42.
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Read MoreIn an email, the Chief Counsel’s office considered the employment status of an adult companion sitter (Chief Counsel Email 201633034). The email was in regard to information to be contained in training materials, likely for either IRS agents or programs like VITA where volunteer preparers would be trained.
As the proposed training materials explain:
Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled.
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Read MoreFiling partnership returns late now subjects the partnership to significant penalties. Under IRC §6103 the partnership is penalized $195 per month per partner, up to a maximum of ten months, for each month or fraction of a month the partnership return is filed after the due date (including extensions actually granted). However, no penalty applies if the partnership can show the failure is due to reasonable cause. [IRC §6698(a)]
In the case of In re: Refco Public Community Pool LP, Banktruptcy Court for the District of Delaware, Case No. 14-11216, 118 AFTR 2d ¶ 2016-5085 the bankruptcy plan administrator challenged the IRS’s claim for late filing penalties of $3,662,000 for the years 2005-2007.
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Read MoreDelores Gragg in 2006 and 2007 was a licensed real estate agent who had sufficient hours in the real estate activity to be treated as a real estate professional under IRC §469(c)(7). Based on that qualification alone, she and her husband took the position that she should be allowed to be treated as materially participating in the rentals and thus all losses be allowed in full on their returns without regard to Section 469.
However the Ninth Circuit Court of Appeals, considering this “automatic material participation” argument for the first time, rejected this view in the case of Gragg v. United States, Case No. 14-16053, CA9 affirming a decision of the U.S. District Court of Northern California.
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Read MoreThe IRS issued a warning regarding attempts to trick tax professionals to install malware on their systems by clicking on an “update” link for their tax software. [IR-2016-103] Once clicked, the “update” will install a keystroke logger that will send all of the preparer’s keystrokes (which will likely include important client information) to a third party—and we can presume that party is planning to use that information for various nefarious purposes.
The use of email to trick users into installing malware is very common—because it’s very effective. If the email fits the general context that users expect (email from the software provider we use for tax software that is formatted as expected) and the message itself seems reasonable (there’s an important software update—perhaps even an extremely important one to avoid having your systems compromised) we will often click through on the email and follow its instructions without a second thought.
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Read MoreBeginning with 2016 tax returns those preparing the returns for taxpayers will be charged with meeting “due diligence” requirements when taxpayers claim the child tax credit and the American Opportunity Credit or face a $510 penalty should the taxpayer not qualify for the credits [IRC §6695(g)]. For this reason, advisers must remember just how strict the rules are for a noncustodial parent to be able to claim a child—and that the mere fact the taxpayers ex is in direct violation of the terms of the decree to release the exemption is not sufficient to allow the noncustodial parent to claim the credit.
This problem is perfectly illustrated in the case of Cappel, Sr. v. Commissioner, TC Memo 2016-150. And the situation is one that, beginning with 2015 returns, could put a preparer who prepared a return claiming these children at risk for the penalty that Congress added in the Protecting Americans from Tax Hikes Act of 2015.
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Read MoreSince its original enactment, the like kind exchange provisions IRC §1031 has been allowed to apply to transactions for which there is not a direct exchange between parties of property. Initially such transactions were expanded, first by judicial holdings and then explicitly by Congress [IRC §1031(a)(3)] to include deferred “forward” exchanges where the taxpayer does not simultaneously receive the replacement property from the party that acquires the relinquished property, but rather, with the use a qualified intermediary, acquires property from another party with the proceeds of the sale.
Later case law allowed for reverse deferred exchanges (referred to as reverse Starker exchanges in reference to a major Ninth Circuit case on the original forward exchanges) where the replacement property is acquired first and then the relinquished property is later sold.
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Read MoreJust less than a month after indicating that initial contacts for employers who may be falling behind in their federal tax deposits will not be made by phone, the IRS has added another category to the "don't call first" list. the same guidance has now been issued related to payroll exams looking at tip reporting, with SBSE Memo SBSE-04-0816-0031 providing that initial contact in those cases will not be conducted by telephone.
The IRS is reacting to the increasing number of scam phone calls to taxpayers claiming to be from the IRS and threatening dire consequences if some action is not taken immediately. In response the IRS is working on modifying guidance in the Internal Revenue Manual to limit cases where the first contact with a taxpayer will be by phone.
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Read MoreThe IRS has issued guidance on how it deal with the new rules on Individual Taxpayer Identification Numbers (ITINs) that were contained in the Protecting Americans Against Tax Hikes Act of 2015 (PATH) in Notice 2016-48.
The IRS is authorized under IRC §6109 to issue identification numbers for taxpayers and request information from such taxpayers. Generally these ITINs are issued to taxpayers who are not eligible to receive a social security number (SSN) and are used for tax matters in lieu of the social security number.
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Read MoreThis article is a revision of the article originally published in June to take into account the revisions later made by Notice 2016-49 to the requirements for the program.
The IRS has released a Revenue Procedure (Revenue Procedure 2016-33) that outlines how organizations will apply for Certified Professional Employer Organization (CPEO) status. The CPEO status, added by the Tax Increase Prevention Act of 2014, is meant to address an issue that arises when PEOs collect payroll taxes from employers but fail to pay those taxes over to the government.
Normally in such a situation the organization that hired the PEO remains on the hook for the payroll taxes, even if they were the victim of a fraud perpetrated by the PEO to walk off with payroll taxes. See the case of City Wide Transit, Inc. v. Commissioner, CA2, 2013-1 U.S.T.C. ¶50,211, reversing TC Memo 2011-279, 3/1/13.
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Read MoreIn Revenue Procedure 2016-42 the IRS gave sample language that can be included in the governing instrument of a Charitable Annuity Trust (CRAT) providing for annuity payments payable for one or more measuring lives followed by the distribution of trust assets to one or more charitable remaindermen that can allow the trust to escape the “probability of exhaustion” testing found in Revenue Ruling 70-452.
Charitable remainder trusts, as defined in IRC §664, provide one of the few methods that allow for a charitable deduction of a partial interest to a charity for either income tax or estate tax purposes. The trusts provide for a payout to an income beneficiary for a period of time (can be a fixed number of years or for life) and then, following the end of that term, the balance remaining in the trust being paid to a charitable organization. A deduction is allowed for the discounted value of the expected balance to be paid to the charity at the time the trust is formed.
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Read MoreThe AICPA ended up on the losing side of their case challenging the IRS's program to grant a credential to certain unenrolled preparers when the case returned to the US District Court for the DIstrict of Columbia on remand. (American Institute of Certified Public Accountants v. IRS et al.; No. 1:14-cv-01190, USDC DC, 8/3/16)
The IRS initially was successful in having the AICPA lawsuit dismissed. The ruling (American Institute of Certified Public Accountants v. IRS, et al., DC Dist Col, 114 AFTR 2d ¶2014-5386) held that the AICPA did not have standing to challenge the program. However the ruling was overturned on appeal to the DC Circuit (Docket No. 14-5309) with the appellate Court finding that the AICPA had shown the issuance of this registration could cause an actual or imminent increase in competition from CPAs due to the new government program, with the listing allowing them to compete more effectively against CPAs and potentially take business away. Thus, the panel found, the AICPA had competitor standing to challenge the program.
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