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 IRS has announced relief for victims of Hurricane Matthew in North Carolina from certain date related deadlines in IR-2016-19. The IRS has continued to expand the list of affected counties over time, with the most recent update coming Monday, October 17.
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Read MoreIn the case of Harvey C. Hubbell Trust et al. v. Commissioner; T.C. Summary Opinion 2016-67 the IRS was disallowing all of the charitable contributions claimed by the trust for 2009. The IRS did not deny that the contributions were made. The agency also did not claim the recipients were not qualified charitable organizations. Rather, the IRS claimed the contributions were not made according to the terms of the will that established the trust.
The trust in question had been making charitable contributions for many years (going back to 1985) and in quite substantial amounts. For instance, in 1985 the trust made (and deducted) charitable contributions of $384,976, and had made contributions, often in excess of $100,000, for many years between 1985 and 2008. Apparently the IRS had never raised any issue with regard to these contributions—likely because the IRS had never examined the trust.
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Read MoreIRC §165(i) provides for a taxpayer to electively claim a loss on a federally declared disaster on the return for the year prior to when the disaster occurred. The IRS has issued Revenue Procedure 2016-53 and proposed regulations (REG-150992-13) for taxpayers who wish to take advantage of this election.
The proposed regulations would set the deadline for both making the election (six months after the due date of the tax return for the year of the disaster excluding any extensions) and for revoking a previous election (90 days after the due date for making the election).
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Read MoreHow to calculate the penalty for failing to disclose a listed transaction under IRC §6707A when the taxpayer erroneously overreported other income on the return is the issue the Tax Court was asked to decide in the case of Yari v. Commissioner, 143 TC No. 7. And the Tax Court’s answer (sustained on appeal by the Ninth Circuit) was not the one the taxpayer liked.
The case in question involved a Roth IRA “stuffing” transaction where the taxpayer had a Roth IRA acquire 100% of the interest in a management S corporation. That corporation then charged management fees to the taxpayer’s controlled business (a disregarded entity LLC), receiving $1,221,778 in such fees over the years from 2002 to 2007.
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Read MoreThe IRS looked to expand their “Secure Access” to e-Services used by tax professionals, but on October 14 the agency announced an indefinite delay in implementing that requirement. The announcement of the delay did not provide any details on when the program would begin operations or what changes, if any, might be made to the program.
On September 22 the IRS announced it was going to expand the secure access program to cover access to e-Services (Questions and Answers Related to e-Services Migration to Secure Access). However, as has been discussed regarding the roll-out of this program to other services (like the online transcript system), there is a far from insignificant number of individuals who generally cannot complete the process online.
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Read MoreThe IRS has expanded its view of what doesn’t work for treating an LLC member’s income as not subject to self-employment tax in Chief Counsel Advice 201640014.
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Read MoreThe IRS in Notice 2016-58 provided updated special per diem effective for the period from October 1, 2016 to September 30, 2017. These special rates include the rate for the special transportation industry meals and incidental expenses (M&IE) rate, the rate for the incidentals-only deduction and the rates and list of high-cost localities for purposes of the high-low substantiation method.
The special transportation industry rates for 2016-2017 are $63 for any locality of travel in the continental United States and $68 for any locality of travel outside the continental United States. The general rules for qualifying to use these rates and how to use them are found in Section 4.04 of Revenue Procedure 2011-47.
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Read MoreThe IRS, as promised in the regulations issued to implement the portability election under IRC §2010, has now issued a revised Revenue Procedure (Revenue Procedure 2016-49) which modifies the conditions under which a QTIP election will be deemed invalid that were contained in Revenue Procedure 2001-38.
The qualified terminable interest property (QTIP) election under IRC §2056(b)(7) is designed to allow a trust to be created to hold property passing to a surviving spouse with an interest that terminates at his/her death, with ultimate disposition controlled by the trust document itself. When the election is made, the surviving spouse agrees to treat the property as part of his/her estate despite having an interest that normally would be considered solely a life estate. With that election in place, the property qualifies for the unlimited marital exclusion at the first death.
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Read MoreAn estate that owned a 99% interest in an LLC whose only asset was an account with Madoff Securities looked to claim a theft loss deduction on its estate tax return in the case of Estate of Heller v. Commissioner, 147 TC No. 11.
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Read MoreThe IRS in News Release IR-2016-125 provided information regarding the use of private debt collectors to pursue unpaid taxes mandated by Congress in the Protecting Americans from Tax Hikes Act of 2015.
The IRS had been mandated to begin using the private agencies earlier this year, but the IRS has delayed the beginning of the program and will, per the announcement, begin using the agencies in the spring of 2017, though an exact date for the start was not announced.
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Read MoreIn early 2015, we wrote a post in this blog regarding the case of Specht v. Commissioner and the executor's argument that the estate had reasonable cause for late filing of its estate tax return due to failures of the estate's legal counsel to perform her duties, along with statements the attorney made to mislead the executor regarding her failures to perform those duties.
The U.S. District Court found in that case that, regardless of the attorney's failures and the executor's lack of sophistication, the executor could not delegate her duty to insure that returns were filed by the due date. Thus, the Court sustained penalties and interest of nearly $1.2 million against the estate.
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Read MoreSometimes taxpayers may adopt a plan on paper that would create tax savings, but then turn a blind eye with regard to actual compliance with the plan. That was the issue in the email advice discussed below
Despite the fact that a SUB Trust plan summary description indicated that benefits it would pay would be limited to those who qualified for state unemployment benefits, the failure of the employers submitting lists of employees to be paid under the plan to confirm the employees had received stated unemployment meant the payments were not treated as FICA-exempt supplementation unemployment benefits (Chief Counsel Email 201639015).
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Read MoreIn a letter to Representative Patrick Murphy dated September 23, 2016 the IRS Commissioner stated to payments made to victims of the Orlando mass shootings at the Pulse nightclub in June by charities do not represent taxable income to those victims.
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Read MoreThe IRS has published the Standard Industry Fare Level (SIFL) rates and terminal charges for the final six months of 2016 in Revenue Ruling 2016-24.
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Read MoreAn unusual arrangement that provided disability benefits was at issue in the case of Estate of Barnhorst v. Commissioner, TC Memo 2016-177. The key issue was whether the benefit paid by the program in 2010 represented payments under an accident or health plan under IRC §105(a) and, if so, did the benefits received represent payments not related to the absence from work under IRC §105(c). The IRS claimed that, in reality, this was simply a deferred compensation plan and should be taxed as such.
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Read MoreThe taxpayer in the case of Exelon Corp. et al. v. Commissioner, 147 T.C. No. 9 had a major gain that it did not want to pay current tax on—almost $1.6 billion. The gain would occur when an acquired entity disposed of its fossil fuel power plants.
The taxpayer was approached with a potential solution—engage in a purported §1031 exchange. The taxpayer acquired power plants from tax exempt public utility companies as the claimed replacement property, plants which they then leased back to those entities. Referred to as a “sale in, lease out” (SILO) transaction, it was a packaged transaction sold to the taxpayer.
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Read MoreOne of the more aggressively promoted types of shelters pushed onto small businesses related to purported 10 or more employer welfare benefit plans established pursuant to IRC §419A(f)(6). In the case of Schechter v. Commissioner, TC Memo 2016-174 the Tax Court found that, regardless of the possible propriety of the plan, the taxpayer simply failed to produce evidence necessary to show compliance with the requirements that provision.
The issue involved a $450,000 payment made by the S corporation in which Mr. Schechter held a 100% interest for the year in question. The $450,000 was paid to the company’s “Sickness, Accident & Disability Indemnity Trust 2007” of which $427,500 was used to purchase a single premium life insurance policy on Mr. Schechter’s life.
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Read MoreAn often contentious issue for taxpayers who have real estate is determining if a piece of property does or does not represent a capital asset when it is sold. The case of Boree v. Commissioner, 118 AFTR 2d ¶ 20165207, CA11, No.14-15149 posed just such an issue.
There is no question that Mr. Boree initially acquired the land in 2002 with the intent to develop the land and sell the property as over 100 lots. Such a plan will cause the lots to be treated as property held for sale in the ordinary course of business.
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Read MoreDue to identity theft and phone scams, the IRS has been modifying its guidance to employees to move away from making initial contact with a taxpayer via phone calls, instead moving towards requiring IRS employees to first send letters via mail to initiate contact.
The IRS has issued guidance to field employees in SBSE-04-0916-0023 that is similar to guidance previously issued for payroll tax exam and FTD deposit alert contacts. This memorandum now orders field examination employees to make first contact via mail, and has interim revisions of various sections of Internal Revenue Manual 4.10.2.8, 4.10.2.9 and 4.10.2.10.
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Read MoreThe question that had to be decided in the case of Barnhart Ranch Co. et al. v. Commissioner, T.C. Memo. 2016-170 was whether the income and deductions from the cattle operations in question was actually the income of the Barnhardt brothers (as they had reported on their 1040s for the year in question) or rather the operations of the corporation. And, unfortunately for the taxpayers, this is once again a case where the taxpayers, being in charge of the form of a transaction, are not generally going to succeed arguing the substance of the transaction was different.
The brothers had reported net losses from the cattle operation for the years under exam of approximately $860,000 for 2010, $685,000 for 2011 and $970,000 for 2012, using those losses to offset other income reported on their returns. The IRS contended that those losses rather belonged on the return of BRC, Inc., a C corporation formed by the brothers in September 1994.
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