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.
In PLR 201835017 the IRS granted a taxpayer a waiver of the 60-day deadline to roll over a distribution she received from a qualified retirement plan. She received this relief because she claimed she had previously relied on her spouse to handle all tax and financial matters, but the couple had separated during the 60-day period.
Image copyright wittaya123 / 123RF Stock Photo
Read MoreIn the case of Harbor Lofts Associates et al. v. Commissioner, 151 TC No. 3 the Tax Court ruled that a long term lease holder did not hold a qualified real property interest which could qualify for a deduction for the donation of a conservation easement.
Image copyright designer491 / 123RF Stock Photo
Read MoreIn News Release IR-2018-175 warned tax professionals that a failure to prepare a written data security represents a violation of the FTC’s Safeguards Rules and the that the IRS may treat a violation of the FTC Safeguards Rule as a violation of the standards for authorized IRS e-file providers under Revenue Procedure 2007-40.
The IRS Electronic Tax Administration Advisory Committee (ETAAC) members noted in June that they believe fewer than half of all tax professionals are aware of the FTC rule and have written plans in compliance with the rule.
Image copyright badboo / 123RF Stock Photo
Read MoreThe IRS has issued Notice 2018-70 to clarify the definition of a qualifying relative and exemption amount following changes made in the Tax Cuts and Jobs Act.
Image copyright ragsac / 123RF Stock Photo
Read MoreIn PLR 201833012 the IRS ruled that it was acceptable for an employer to amend its 401(k) plan to provide a nonelective contribution for employees who make qualifying repayments on their student loans.
Image copyright ileezhun / 123RF Stock Photo
Read MoreThe much anticipated proposed regulations to deal with the various credits that could be used to work around the newly imposed limitation found at IRC §164(b)(6) on deductions for state and local taxes have been released by the IRS (REG-112176-18). The resulting rules are going to affect both the new workaround credits passed by New York, Connecticut, New Jersey and other states following the passage of the Tax Cuts and Jobs Act, as well as already existing credits in other states.
The credits in question give taxpayers a credit for all or a very significant portion of the contribution made as a direct reduction in state income taxes or property taxes. Credits of this type had existed for years, being especially popular as credits for making contributions to organizations that provided scholarships or financial support to students attending private primary and secondary schools.
Image copyright olegdudko / 123RF Stock Photo
Read MoreCongress anticipated that, due to the reduction of the corporate tax rate found in the Tax Cuts and Jobs Act (TCJA), certain S corporations would wish to terminate their election to become a C corporation. Because of this, Congress added certain special rules that would apply to S corporations that revoked their status within two years of the date of enactment of TCJA.
Image copyright rondale / 123RF Stock Photo
Read MoreIn Notice 2018-67 the IRS has provided rules to deal with separate trade or business issues for Unrelated Business Income found in IRC §512(a)(6) as added by the Tax Cuts and Jobs Act.
Image copyright papparaffie / 123RF Stock Photo
Read MoreThe taxpayers in the case of Pacific Management Group et al. v. Commissioner, TC Memo 2018-131, were upset that they were being taxed twice on the income of their C corporation, once at the corporate level and a second time if the earnings were distributed to the shareholders. But the IRS and, eventually, the Tax Court found the solution they were sold was too good to be true.
Image copyright arcady31 / 123RF Stock Photo
Read MoreWhile a lot of attention has been focused on the Wayfair decision and how it can require an out of state seller to collect sales taxes on behalf of a state under certain conditions, it is important to remember that prior laws that were written to work with the Quill decision are still on the books. As the Supreme Court noted in the Wayfair decision, Quill seemed to stand for the proposition that any physical presence in a state enabled a state to impose a sales tax collection requirement. Thus, such statutes were sometimes drafted with a very low de minimis exception for out of state sellers, well below the $100,000 level found in South Dakota’s statute.
The state of Idaho has announced plans to continue to move forward with enforcing the state’s affiliate agreement nexus law and that the Idaho State Tax Commission has contacted 500 out of state sellers to “remind” them of the requirement to begin collecting the tax (“Some out-of-state retailers required to collect Idaho sales tax”, Idaho State Tax Commission News Release).
Image copyright gagarych / 123RF Stock Photo
Read MoreWhile the Wayfair decision involved sales tax issues, the fact that the Supreme Court found that there was no need for physical presence for a business to be required to collect sales taxes suggested it was unlikely that such a test would apply for other types of taxes. Shortly after the Wayfair decision was announced, Wells Fargo announced it was picking up an additional $481 million in state income taxes on its financial statements.[1]
Now the Oregon Supreme Court has ruled that the state’s corporate income tax does not require the physical presence of the corporation in the case of Capital One Auto Finance, Inc. v. Department of Revenue, Docket No. SC S064803.
Image copyright kerdazz / 123RF Stock Photo
Read MoreThe AICPA has sent a letter dated August 13, 2018 asking for immediate guidance on issues arising from the Tax Cuts and Jobs Act related to S corporations and excess business losses under IRC §461(l). This request was developed by the AICPA S Corporation Taxation and Trust, Estate, and Gift Taxation Technical Resource Panels and approved by the AICPA Tax Executive Committee.
Image copyright andreypopov / 123RF Stock Photo
Read MoreThe AICPA won and then lost in the case of American Institute of Certified Public Accountants v. IRS, Case No. 16-5256, DC CA.
The AICPA had instituted a challenge to the IRS’s Annual Filing Season Program, established in Revenue Procedure 2014-42. The opinion describes the program as follows:
The Program grants an annual “Record of Completion” to any participant who has obtained a preparer tax identification number, taken the annual “federal tax filing season refresher course,” passed a comprehension test, completed a minimum of eighteen hours of continuing education, and “consent[ed] to be subject to the duties and restrictions relating to practice before the IRS in subpart B and section 10.51 of Circular 230 for the entire period covered by the Record of Completion.” Id. § 4.05(1)-(4).
The IRS offers two incentives to participate in the Program. First, the IRS lists unenrolled agents with a Record of Completion in its online directory of tax preparers alongside attorneys, CPAs, and enrolled agents. Second, the IRS gives them the “limited practice right” to represent a taxpayer in the initial stages of the audit of a return he or she prepared; for this the unenrolled agent must have a Record of Completion for both the year of the return and the year the IRS initiated the audit. Id. § 6. Before the Program was established, all unenrolled agents had this limited practice right.
The IRS appealed District Court opinion that ruled the AICPA had no standing to bring this suit on behalf of its members. The AICPA appealed that ruling to the DC Circuit Court of Appeals which reversed the District Court and held that the AICPA had standing to bring the suit.
Image copyright nikiteev / 123RF Stock Photo
Read MoreThe much anticipated proposed regulations on the IRC §199A deduction related to qualified business income have been released by the IRS ([REG-107892-18]). The proposed regulations give the first official insight into how the IRS is planning to administer the new provisions found under IRC §199A.
Image copyright lopolo / 123RF Stock Photo
Read MoreThe North Carolina Department of Revenue issued Directive SD-18-6 that contains the state’s new directive requiring out of state sellers who meet certain de minimis requirement to collect and remit the state’s sales tax.
Image copyright georgejmclittle / 123RF Stock Photo
Read MoreThe taxpayers in the case of Garcia v. Commissioner, TC Summary Op. 2018-38, recognized that expenses related to litigation that arose from an investment in stock in Randgold & Exploration Co., Ltd. (R&E) they had made would only be deductible as IRC §212 expenses. They also recognized that a deduction under that provision would be a miscellaneous itemized deduction subject to the 2% floor imposed on all such deductions in the year in question and not deductible at all in computing their alternative minimum tax liability.
The taxpayers also were aware that if such expenses were an ordinary and necessary trade or business under IRC §162 that was incurred in the trade or business other than that of being an employee, the entire amount of the expense would be deductible in computing their adjusted gross income. As well, the entire amount would also reduce their alternative minimum taxable income.
Image copyright fergregory / 123RF Stock Photo
Read MoreThe IRS in TD 9839 issued the final regulations outlining the rules applicable to the partnership representative under the Centralized Partnership Audit Regime (CPAR). These regulations, found at Reg. §§301.6223-1 and 301.6223-2, outline the qualifications for a representative, how the representative resigns or is removed and the powers of the representative.
The IRS also finalized the regulations on the election to apply the CPAR rules to examinations of years beginning after the enactment of the Bipartisan Budget Act of 2015 but before January 1, 2018. Those regulations, found at Reg. §301.9100-22, were adopted in final form without change and the temporary regulations were removed.
Image copyright choreograph / 123RF Stock Photo
Read MoreProposed regulations to implement the changes to bonus depreciation made by the Tax Cuts and Jobs Act have been released by the IRS in REG-104397-18.
The preamble provides that taxpayers may rely upon the proposed regulations until final regulations are issued:
Pending the issuance of the final regulations, a taxpayer may choose to apply these proposed regulations to qualified property acquired and placed in service or planted or grafted, as applicable, after September 27, 2017, by the taxpayer during taxable years ending on or after September 28, 2017.
Some of the key features of the proposed regulations are discussed below.
Image copyright liujunrong / 123RF Stock Photo
Read MoreThe IRS has now issued guidance on how businesses may obtain automatic consent to change accounting methods to use the new “small business” methods contained in the Tax Cuts and Jobs Act in Revenue Procedure 2018-40.
Image copyright bleakstar / 123RF Stock Photo
Read MoreThe released Notice 2018-62 that describes regulations the IRS plans to issue to clarify the rules on increased contribution limits to ABLE accounts enacted as part of the Tax Cuts and Jobs Act.
Image copyright janpietruszk / 123RF Stock Photo
Read More