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.
High deductible health plans (HDHPs) will be allowed to pay for COVID-19 related testing and treatment without regard to whether the insured has met their deductible under relief announced by the IRS in Notice 2020-15.[1] Such payments will not impact the plan’s qualification as HDHPs, nor the ability of taxpayers covered by such plans to make contributions to health savings accounts (HSAs).
Read MoreIn Revenue Procedure 2020-17[1] the IRS provided an exemption from information reporting rules under IRC §6048 for transactions with or ownership of certain specified tax-favored foreign trusts.
Under IRC §6048, U.S. persons are required to file annual reports for:
Transfers of money or other property to a foreign trust;
Ownership of a foreign trust; or
Distributions from a foreign trust.
The information reporting for §6408 is provided for on:
Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and
Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner (Under section 6048(b)).
IRC §6077 imposes significant penalties on taxpayers who fail to file these reports.
Read MorePractitioners from time to time will encounter traders in securities in their practice. Such traders hold investments for a very short period of time, often no more than minutes, looking to make money from short term movements in the price of the securities in question.
Unfortunately, doing this successfully is far from simple, and quite a few new traders find their new business is the perfect vehicle to turn a large fortune into a small one—or none. The sale of securities normally is considered a sale of a capital asset—so if they are unsuccessful, they quickly have losses far in excess of the $3,000 per year limit on an individual claiming capital losses in excess of capital gains.
Read MoreA taxpayer’s decision to voluntarily withdraw from the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) program and instead argue a reasonable cause defense for the failure to file Foreign Bank Account Reporting forms did not end well. In the case of United States v. Ott, US DC SD Michigan, Case No. 2:18-cv-12174 the taxpayer ended up with almost $1 million in penalties when the Court determined that he had acted willfully in failing to file annual FBAR reports on his Canadian accounts.
Read MoreAn S corporation argued that it had reasonable cause for late filing its Forms 1120S for multiple years due to both its CEO and CFO having serious illnesses that in both cases led to their deaths. However, the corporation was not successful in the case of Hunter Maintenance and Leasing Corp. Inc. v. United States, US District Court ND Ill., Case No. 1:18-cv-06585 in obtaining an abatement of the penalties.
Victor Cacciatore had founded the company, along with a number of others, and was treated as CEO and Chairman of the Board of the Company, controlling and exercising final decision-making authority over all financial and tax matters.
Read MoreThe U.S. Supreme Court has decided not to hear the appeal from the Ninth Circuit in the case of Baldwin v. United States, Case No. 19-402.[1] The denial leaves standing the Ninth Circuit’s ruling that Reg. §301.7502-1(e)(2) rendered irrelevant a prior Ninth Circuit decision in the case of Anderson v. United States, 966 F.2d 487 (9th Cir. 1992).
We previously wrote about this case when it was first decided by the Ninth Circuit in April 2019.[2]
The issue involved whether a taxpayer could only show timely mailing of their document by producing a certified or registered mail receipt stamped by a U.S. Postal Service employee or whether they could resort to other evidence showing the document had been timely mailed. In 1992 the Ninth Circuit had ruled that other evidence could be considered in the Anderson case. Other circuits had held that provisions Congress enacted in IRC §7502 for proof of timely filing of documents were meant to be the sole method of proving such timely mailing.
Read MoreThe Treasury Department has released proposed regulations relating to the changes to IRC §274 made as part of the Tax Cuts and Jobs Act.[1]
The Tax Cuts and Jobs Act (TCJA) repealed the rule that allowed a deduction for entertainment expenses if the taxpayer established that:
The entertainment was directly related to the active conduct of the taxpayer’s trade or business (directly related exception), or
In the case of an item directly preceding or following a substantial and bona fide business discussion (including business meetings at a convention or otherwise), the item was associated with the active conduct of the taxpayer’s trade or business (business discussion exception).
Thus, following the TCJA, no deductions are allowed for entertainment expenses unless they meet one of the exceptions found at IRC §274(e).
Read MoreThe IRS has suggested that tax professionals should made use of multi-factor authentication to protect their systems and information in News Release IR-2020-32.[1]
Multi-factor authentication (MFA) requires the user to provide multiple, independent pieces of information or items to authenticate their right to access a system or information. Such a system would involve providing two or more of the following items:
Something you know (username/password combination);
Something you are (fingerprint);
Something you have (a hardware token)
A taxpayer argued that the failure to include the basis of the property in an appraisal summary supporting its charitable deduction for a conservation easement should not prove fatal to the deduction in the case of Oakhill Woods, LLC v. Commissioner, TC Memo 2020-24.[1] The letter attached to the appraisal noted:
A declaration of the taxpayer’s basis in the property is not included in * * * the attached Form 8283 because of the fact that the basis of the property is not taken into consideration when computing the amount of the deduction. Furthermore, the taxpayer has a holding period in the property in excess of 12 months and the property further qualifies as “capital gain property.”[2]
Read MoreThe IRS has revised its guidance on what constitutes virtual currency on its webpage, but there was a bit of confusion that was generated with comments from IRS Chief Counsel Michael Desmond on the day following the change. Now the IRS has issued a clarification that may help to resolve this matter, at least in most cases.
Read MoreA taxpayer’s attempted donation of a conservation easement that qualified for a deduction under IRC §170(h) was found not to meet the requirement that the easement was “protected in perpetuity” in the case of Railroad Holdings, LLC v. Commissioner, TC Memo 2020-22.[1] The problem arose from a clause that detailed what would happen if the easement were extinguished due to judicial proceedings.
IRC §170(h) provides a charitable contribution deduction for contributions of conservation easements that meet certain requirements. One of these, found at IRC §170(h)(5)(A), is that the conservation purpose must be protected in perpetuity.
Read MoreThe last official guidance we received on the application of the business interest limitation under IRC §163(j) arrived late in 2018 with proposed regulations. We now have signs that additional guidance is on the way, both in terms of final regulations[1] and additional proposed regulations[2] based on regulatory review information posted on the website of the Office of Information and Regulatory Affairs (OIRA). However, we are still a bit in the dark on exactly when the guidance will be seen—and, more to the point, whether it will emerge before or after the first 2019 return original due dates arrive.
OIRA first posted notification that it had completed its review of §163(j) final regulations, based on the 2018 proposed regulations. While the posting indicated the review had been completed on January 31, 2020, [3] the information does not appear to have been posted on OIRA’s website until February 4, 2020.[4]
Read MoreEntities looking to apply for tax-exempt status under IRC §501(c)(3) on Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code) now must submit that form electronically. In Revenue Procedure 2020-8[1] the IRS updated the procedures under Revenue Procedure 2020-5 to mandate that applications for exempt organization determination letters must be handled electronically for applications after January 31, 2020. However, the procedure does provide for a temporary 90-day transition relief period.
Read MoreWhen the IRS first announced that a question would be added to Form 1040, Schedule 1 regarding virtual currency, observers speculated that the IRS might make use of the answer to this question to aid in tax evasion cases. A special agent in charge at the Los Angeles Criminal Investigation Division (CID) was reported to have confirmed this view when speaking at the University of Southern California Gould School of Law Tax Institute per an article published in Tax Notes Today Federal.[1]
Schedule 1, Form 1040 for 2019 contains the following question regarding the taxpayer’s ownership, sale or exchange of virtual currencies:
At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?
Read MoreUpdate: On January 29, 2020 the District Court issued an order granting the motion for reconsideration and, at the same time, issued a revised judgment in favor of the taxpayer in the case.
The IRS is asking the District Court in the case of Harrison v. Internal Revenue Service, USDC WD Wisconsin, Case: 3:19-cv-00194-wmc[1] to reverse its holding in favor of the Government, supporting the taxpayer’s motion for reconsideration[2] in the IRS’s own notice of non-opposition to that motion.[3] So why is the IRS asking the Court to reverse the holding in favor of the agency?
Well, it turns out that there existed controlling authority in favor of the taxpayers’ position but, in the words of the plaintiff’s motion for reconsideration, “all parties failed to cite the relevant authority and the Judge didn’t cite the case either.”
Read MoreThe good news for the taxpayer in the case of Provitola v. Commissioner, US Tax Court Bench Opinion, Nos. 12357-16 and 16168-17 (2019)[1] was that the Court rejected the IRS arguments that their business related to a product to enhance television viewing was a sham. But that was more than offset by the bad news when the Court also found that the business had not yet commenced in the years in question, meaning all expenses were capitalized pursuant to IRC §195 until the year the business actually begins operations.
Mr. Provitola is an attorney who also holds a B.S. in physics. His law practice specializes in patent law and he is sole owner of the S corporation in which he practices. Around 2003 he had an idea to enhance television viewing and began developing a product. Between 2005 and 2016 he was awarded seven patents that related to this product he was developing. [2]
Read MoreIn Technical Advice Memorandum 202004010[1] the IRS ruled that a taxpayer (Taxpayer) could not treat “post-acquisition synergies” as an intangible asset into which costs incurred by a subsidiary(Target) when Taxpayer purchased it could be capitalized and then written off as an ordinary loss under IRC §165(a) when the Taxpayer decided to dispose of Target.
Read MoreA taxpayer was unsuccessful in attempting to recover taxes via a claim of right deduction under IRC §1341 in the case of Heiting v. United States, US DC WD Wisconsin, Case No. 3:19-cv-00224.[1]
The claim of right provision under the IRC is a relatively obscure provision, though one that most advisers will eventually run across in their practice. The provision is meant to provide some relief from the strict annual accounting for income taxes in certain situations where a taxpayer recognizes income that later must be repaid by the taxpayer.
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