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 2016 we noted an unsuccessful attempt by a religious order to get a coffeehouse the organization planned to operate treated as a §501(c)(3) exempt organization.[1] Now, in PLR 201934008,[2] we have another attempt, this time for a coffeehouse that “will act as both a fundraising organization for nonprofits that serve your community and act as a community launch point and gathering venue featuring local art and music.”[3]
Read MoreIn the case of McMillan v. Commissioner, TC Memo 2019-108,[1] the taxpayer was arguing that her loss from her horse business. The IRS had challenged Ms. McMillan regarding this business in five prior Tax Court cases, but this time, she faced a unique challenge—her last horse had died two years previously.[2] So she was arguing for the unique proposition that a horse breeding/showing business did not require a horse.
Unfortunately, the Tax Court did not accept this view.
Read MoreIn PLR 201934006[1] the IRS granted the taxpayer’s request to allow her to roll the amounts from her deceased husband’s IRA to an IRA in her own name.
The IRA had listed the couple’s children as the beneficiaries of the decedent’s IRA. Later a state court named the spouse as the sole beneficiary of her husband’s IRA.
Read MoreWe are getting close to our first look at the IRS’s proposed regulations to implement the revenue recognition conformity and advance payment provisions added to IRC §451 by the Tax Cuts and Jobs Act. Tax NotesToday Federal reported on August 22, 2019, that the IRS’s proposed regulations related to both issues have now completed their review at the Office of Information and Regulatory Affairs of the Office of Management and Budget.[1]
The revenue conformity rules of IRC §451(b) apply to any taxpayer who reports on the accrual method of accounting for tax purposes[2] that has an applicable financial statement (AFR) as defined in IRC §451(b)(3). Under these rules, the taxpayer must generally recognize revenue for tax purposes no later than the date on which the revenue is recognized in the AFR.
Read MoreIn what has happened quite often over the past few years, the Tax Court found in the case of Hairston v. Commissioner, TC Memo 2019-104[1] that the taxpayers had failed to show that either was a real estate professional. Thus, losses of just under $55,000 over three years were treated as passive activity losses.
IRC §469(c)(2) provides a blanket rule that a rental activity is automatically treated as a passive activity. However, IRC §469(c)(7) was added to the law to grant relief from this automatic treatment to individuals who are real estate professionals.
Read MoreFormalizing a change of view by the agency noted on its website in July,[1] the IRS has issued an LB&I, SB/SE directive on the ability of taxpayers who pay two French taxes to claim a foreign tax credit.[2]
The taxes imposed by France that the IRS now agrees are eligible for foreign tax credit treatment are:
Contribution sociale généralisée (CSG) and
Contribution pour le remboursement de la dette sociale (CRDS).
In the case of King Solarman, Inc. v. Commissioner, TC Memo 2019-103[1] the key issue was whether the taxpayer was reporting on the cash or accrual overall method of accounting and, even if the business was on the cash method of accounting, it was nevertheless required to use the overall accrual method of accounting for tax purposes.
Taxpayers are generally eligible to use the overall cash or accrual method of accounting or another method permitted under the Code or regulations.[2] However, once a taxpayer has chosen an overall method of accounting, the taxpayer must obtain the IRS’s permission to change that method.[3]
Read MoreA U.S. magistrate judge has recommended that the government be granted summary judgment in a suit to collect a willful failure to file FBAR reports penalty in the case of United States v. Said, USDC Middle District Florida, Case No. 8:17-cv-00826.[1]
The Court outlined the standard to be used to determine if there was willfulness in the context of failure to file the FBAR reports:
In the FBAR context, willfulness “may be proven ‘through inference from conduct meant to conceal or mislead sources of income or other financial information,’ and it ‘can be inferred from a conscious effort to avoid learning about reporting requirements.’” Williams, 489 Fed. App’x at 658 (quoting United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991))...[2]
Read MoreIn a story posted on August 1, 2019 we noted that DNA testing firm 23andMe had reported receiving a private letter ruling from the IRS that allows for a portion of a DNA test kit fee paid for ancestry and health testing qualified as a deductible medical expense under IRC §213. The ruling (PLR 201933005) has been posted by IRS.
While most taxpayers do not itemize, and even those that do often have not incurred the necessary amount of medical expenses to begin to deduct them on Schedule A, the ruling clears the way to use HSA funds to reimburse the taxpayer for the medical portion of the fee. As well, flexible spending accounts also should be able to reimburse such amounts as well.
Read MoreThe IRS has announced that the agency will be sending out refunds to over 400,000 taxpayers who are eligible for relief previously announced from the IRS related to estimated tax penalties in IRS News Release IR-2019-144.[1] The checks will be issued to taxpayers who were eligible for relief the IRS announced on January 16 and March 22 but who either did not take advantage on that relief on their return or filed their return before the relief was announced and have not filed a claim for refund.
The IRS lowered the threshold for the application of the penalty for underpayment of estimated income taxes from its standard 90% of the current year’s tax to 80% of the tax being paid in via withholdings and estimated taxes.
Read MoreThe tolling of the statute of limitations for filing a claim for refund due to financial disability under IRC §6511(h) does not apply to estates, per a ruling from the US District Court for the Northern District of Alabama in the case of Carter v. United States, US DC ND Alabama, Case No. 5:18-cv-01380.[1]
IRC §6511(h) was enacted by Congress to provide relief for a case where a taxpayer fails to file a claim for refund within the time period provided otherwise by that section due to a financial disability. The provision provides “an individual is financially disabled if such individual is unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.”[2]
Read MoreThe IRS in a news release announced the release of a new online tax withholding estimator, replacing the previous withholding calculator.[1] The new calculator, found at https://apps.irs.gov/app/tax-withholding-estimator, is designed to be both simpler to use and mobile friendly (that is, easier to use on smart phones).
Read MoreThe Fifth Circuit in March 2019 raised, but did not answer, the question of whether it was still appropriate to hold that taxpayers could not reasonably rely on a return preparer for timely filing of a return in the age of electronic filing.[1] A U.S. District in Court in Tennessee decided that, since taxpayers could prepare their own paper return or obtain paper returns from the preparer, the prior rule should continue to apply.[2] The Court also held that the taxpayer could not seek first-time abatement (FTA) relief in Court—rather, that is fully under the IRS’s control.
The US Supreme Court held in the Boyle case[3] that a taxpayer could not establish reasonable cause for failing to file a tax return by claiming he/she relied upon a tax preparer to timely file the return. The Court found that the duty required no special knowledge or skill to file a return (a trip to the Post Office or local IRS office) and, as such, could not be delegated to a third party—the taxpayer had a duty to insure the third party actually took the desired action.
Read MoreThe Self-Employed/Small Business (SBSE) Division of the IRS has a memorandum outlining revised procedures for third party contact in SBSE-04-0719-0034.[1] The revised procedures reflect changes made to IRC §7602(c)(1) by the Taxpayer First Act of 2019.
IRC §7602(c)(1), both before and after amendment, required the IRS to provide notice to the taxpayer prior to contacting third parties. The IRS had taken the position, noted in the Internal Revenue Manual at IRM 25.27, Third Party Contacts, that providing the taxpayer with Publication 1, Your Rights as a Taxpayer, was sufficient notice under the prior law.
Read MoreThe issue of the reach of the ban on claiming the earned income tax credit when a taxpayer knowingly claims a dependent he/she is not allowed to claim is discussed in an emailed chief counsel advice (CCA 201931008).
Read MoreWayfair related state sales tax developments have continued since the ruling came down last summer, with virtually every state with a sales tax making changes over the past year in how they handle out of state sellers. But the state of Kansas has decided to go where no one else has dared to tread, issuing Notice 19-04, Sales Tax Requirements for Retailers Doing Business in Kansas.[1]
As you read the document you’ll note one key item is missing—the minimum amount of sales (either in dollar volume or number of transactions) necessary to trigger the need to register and collect Kansas sales tax. That is because, in the view of the Kansas Department of Revenue, any amount of sales into Kansas is enough to trigger the requirement to collect and pay over the tax
Read MoreThe Wall Street Journal reported that genetic testing service 23andMe has received a private letter ruling from the IRS that allows a portion of the payment made to the entity to be treated as a medical expense.[1] A redacted copy of the ruling has been posted by the company on its website.[2] The Wall Street Journal article noted that the IRS will publish the standard redacted PLR in August.[3]
Read MoreThe IRS has granted relief related to last minute decisions taxpayers had to make regarding bonus depreciation following the passage of the Tax Cuts and Jobs Act. For the tax year that contained September 28, 2017 (the first day the new 100% bonus depreciation applied), the IRS will allow taxpayers to make or revoke elections related the various bonus depreciation issues. The relief is provided in Revenue Procedure 2019-33.
Read More