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 Large Business and International Division and Small Business/Self-Employed Division issued an Internal Guidance Memorandum to IRS personnel regarding interim field examination procedures under the partnership audit rules that were enacted as part of the Bipartisan Budget Act of 2015 (the BBA rules).[1]
Read MoreWith Revenue Procedure 2019-48[1] the IRS has updated the rules regarding the use of per diem rates to substantiate, under IRC §274(d) and Reg. §1.274-5, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. The update incorporates the revisions made as part of the Tax Cuts and Jobs Act (TCJA), including the temporary suspension of the deduction for miscellaneous itemized deductions under IRC §67(g).
Read MoreIRS Commissioner Charles Rettig, in a letter to members of Connecticut’s Congressional delegation, indicated that the Connecticut Foundation Solutions Indemnity Company, Inc. (CFSIC) is not required to issue Forms 1099 to homeowners who receive reimbursement from the state-chartered insurer, for pyrrhotite related foundation damage.[1]
The Journal Inquirer’s website reported that the CFSIC had previously issued such Forms 1099 to recipients of such payments, which led to inquiries asking why such payments would be deemed to be taxable income. Officials of the CFSIC then wrote to the Congressional delegation seeking clarification, who then forwarded the question on to the IRS.[2]
Read MoreThe first item of the guidance promised by Assistant Treasury Secretary David Kautter to be released by the end of January 2020 has been published. In TD 9884[1] the IRS finalized regulations on the anti-clawback rules that IRC §2001(g)(2) required the IRS to develop to prevent issues when the exclusions are scheduled to be reduced in 2026.
The problem is simple—generally a taxpayer’s estate tax is computed by combining his/her taxable estate at death with his/her lifetime taxable gifts. A gross tax is computed using that figure. It is then reduced by a credit based on the appropriate exclusion amount plus any gift tax actually paid on taxable gifts. If the exclusion amount at death is lower than it was when gifts were made, it’s possible that tax would be due at death with no assets available to pay the tax.
Read MoreIn the case of Wilson, et. al. v. United States, Case No. 2:19-cv-05037, US District Court, Eastern District of New York,[1] the Court found that the sole owner/beneficiary of a trust could only be assessed the 5% penalty under §6677 as the owner. The Court denied the IRS’s attempt to impose the 35% penalty under that section on distributions received.
The issue involves the requirement under IRC §6048 for information reporting by certain foreign trusts. If a party fails to file the required reports, penalties are imposed under IRC §6677.
Read MoreInformation regarding methods being used to perpetrate tax refund frauds using preparer’s systems were discussed by IRS representatives at the New England IRS Representation Conference in North Haven, Connecticut, per a report published in Tax Notes Today Federal.[1]
One method, described by Margaret Romaniello, area manager, IRS stakeholder liaison division, is for intruders on the network to modify bank account information on returns that are awaiting transmission to the IRS for electronic filing. The refund would end up being deposited somewhere other than where the taxpayer intended it to be deposited, such as a Green Dot prepaid debit card in the words of Romaniello.
Read MoreThe IRS has continued to add more questions to the set of frequently asked questions on IRC §199A.[1]
For those hoping that this might mean the IRS has changed its answer regarding the treatment of S corporation shareholders and the self-employed health insurance deduction—you will be disappointed. The answer to question 33 remains unchanged from the version first posted on April 11, 2019.[2]
However, in the most recent revision, the IRS added 12 questions related to rentals. For the most part there is nothing terribly surprising in the IRS guidance on rentals posted on this site, but it is useful to have the information all in one place. That is, there is nothing like the question 33 surprise that practitioners ran into with the April 11 revisions.
Read MoreThe Tax Court took a second look at whether the IRS had been too late in attempting to collect tax from the taxpayers in the case of Beverly Clark Collection LLC et al. v. Commissioner, TC Memo 2019-150.[1] The Ninth Circuit had sent the case back to the Tax Court to determine if the transaction was a sham, as the IRS alleged, and, if so, whether that made any difference in seeing if there had been an omission from gross income.
Read MoreThe IRS issued Revenue Procedure 2019-46[1] to update Revenue Procedure 2010-51 related to rules for using the optional standard mileage rates for business, charitable, medical or moving expense deductions. The modifications are made to reflect changes made to IRC §§67 and 217 by the Tax Cuts and Jobs Act (TCJA).
Those changes removed the ability for taxpayers to deduct miscellaneous itemized deductions and moving expenses through 2025. The new procedure makes clear that use of these special rules does not somehow “work around” those law changes to restore a deduction.
Read MoreIn a ruling that may provide an option for a deduction of what had become otherwise nondeductible investment advisory fees, the IRS in PLR 201945001[1] (and a series of nearly identical rulings issued at the same time) allowed an insurance company to treat investment advisory fees paid out of an annuity contract as an amount not received by the owner of the annuity under IRC §72(e).
Although investment advisory fees are considered expenses related to the production of income under IRC §212, they are treated as a miscellaneous itemized deduction for individuals. For tax years beginning after 2017 and before January 1, 2026, such items are not deductible for individuals pursuant to IRC §67(g).
Read MoreThe IRS published various cost of living adjusted numbers for the 2020 tax year in Revenue Procedure 2019-44.[1]
This procedure, published annually, deals with most items that are to be inflation adjusted by law aside from items related to retirement plans and health savings accounts, for which other revenue procedures are published each year. In fact, the retirement plan numbers were published on the same day as this main procedure this year.
Read MoreIn 2018 we discussed two U.S. District Court cases where the IRS’s attempt to impose a greater than $100,000 penalty for willful failure to file a Foreign Bank Account Report (FBAR) return was denied by the courts, finding that a Treasury regulation that had not been changed since Congress removed the $100,000 maximum on such willful failures still controlled.[1] The issue has now been addressed for the first time by a U.S. Circuit Court of Appeals in the case of Norman v. United States[2] and the IRS is much happier with the result.
Read MoreThe IRS has released the 2020 inflation adjusted limits for qualified retirement plans and IRAs in Notice 2019-59.
Read MoreThe IRS issued a private letter ruling to a taxpayer dealing with both the exclusion of gain on the sale of a residence under IRC §121 and the like-kind exchange provisions of IRC §1031 in PLR 201944006.[1]
The ruling involves a piece of property.
One of the taxpayers had purchased the property to use as a principal residence, and when the taxpayers were married they continued to use it as their principal residence. Eventually the taxpayers moved into a new residence.
The property was then offered to rent. While there was a period of time when the property was rented to full-time tenants, they also rented it for short-term rentals during other portions of this period of time. The rental use ended when the property was destroyed in a fire.
Following the fire the taxpayers received funds for the destroyed residence, sold the land without rebuilding the residence and acquired new property in a transaction they hoped would qualify for deferral of gain under IRC §1031.[2]
The state of Wisconsin lost in an attempt to look further down the line to find an ultimate consumer to source sales in the case of Wisconsin Department of Revenue v. Microsoft Corporation, Court of Appeals, District IV, Appeal No. 2018AP2024.[1]
The case involves the state of Wisconsin looking to include in the sales factor fees paid to Microsoft for licensing Windows that are included in machines eventually purchased for use in Wisconsin. The purchasers of the computers enter into a sublicense with the manufacturer to use Windows. The Wisconsin Department of Revenue argues that the licensing fee paid by the manufacturer when they installed Windows on the machine should be sourced to Wisconsin when sold to a Wisconsin resident.[2]
Read More