Small Business Taxes & Management

News and Tip of the Day

Small Business Taxes & ManagementTM--Copyright 2016-2017, A/N Group, Inc.

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January 20, 2017


The IRS has issued final regulations (T.D. 9811) regarding the application of the modified carryover basis rules of Section 1022. Specifically, the final regulations modify provisions of the Treasury Regulations involving basis rules by including a reference to Section 1022 where appropriate. The regulations will affect property transferred from certain decedents who died in 2010. The regulations reflect changes to the law made by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

The IRS has published proposed regulations (REG-136118-15) regarding implementation of Section 1101 of the Bipartisan Budget Act of 2015 (BBA). Section 1101 of the BBA repeals the current rules governing partnership audits and replaces them with a new centralized partnership audit regime that, in general, assesses and collects tax at the partnership level. These proposed regulations provide rules for partnerships subject to the new regime, including procedures for electing out of the centralized partnership audit regime, filing administrative adjustment requests, and the determination of amounts owed by the partnership or its partners attributable to adjustments that arise out of an examination of a partnership. The proposed regulations also address the scope of the centralized partnership audit regime and provide definitions and special rules that govern its application, including the designation of a partnership representative.

The IRS has issued temporary (T.D. 9814) and proposed (REG-127203-15) regulations that address transfers of appreciated property by United States persons (U.S. persons) to partnerships with foreign partners related to the transferor. The regulations override the rules providing for nonrecognition of gain on a contribution of property to a partnership in exchange for an interest in the partnership under Section 721(a) pursuant to Section 721(c) unless the partnership adopts the remedial method and certain other requirements are satisfied. The document also contains regulations under Sections 197, 704, and 6038B that apply to certain transfers described in Section 721. The regulations affect U.S. partners in domestic or foreign partnerships.

Revenue Procedure 2017-24 (IRB 2017-7) provides relief from discharge of indebtedness income for taxpayers whose Federal student loans, taken out to attend a school owned by the American Career Institutes, Inc., are discharged by the Department of Education under the "Closed School" or "Defense to Repayment" discharge process. The revenue procedure also provides that the IRS will not assert that the entity discharging these loans has an information reporting requirement. This revenue procedure modifies Rev. Proc. 2015-57 to provide similar reporting relief for creditors under that revenue procedure.

Notice 2017-16 (IRB 2017-7) provides that under the authority granted to the Secretary by Sec. 35(g)(11)(B), an HCTC election for a month in 2016 may be made at any time before the expiration of the 3-year statute of limitation under Sec. 6511 for such year, including on an amended income tax return. This extension of time is provided because, prior to its expiration, the HCTC did not require an election and the Treasury Department and the IRS are concerned that eligible taxpayers may not be aware of the requirement to affirmatively elect the HCTC for coverage provided in 2016.

Tip of the Day

Charitable contributions . . . If you do volunteer work for a qualified organization you can't deduct the value of your time but you can deduct out-of-pocket expenses such as uniforms not suitable for regular wear, mileage to and from the activity (at 14 cents per mile plus tolls and parking), travel expenses to get to a site, and meals if you have to be away from home overnight.


January 19, 2017


Notice 2017-14 (IRB 2017-06) provides that the hardship exemption from the individual shared responsibility payment under Sec. 5000A, described by the Department of Health and Human Services, for an individual who is not enrolled in health insurance coverage that qualifies for the health coverage tax credit (HCTC) allowed by Sec. 35 for one more months between July 2016 and December 2016, but who would have been eligible for the HCTC under Sec. 35 if enrolled, may be claimed on a Federal income tax return without obtaining a hardship exemption certification from the Marketplace.

The IRS has issued proposed amendments (REG-131643-15) to the definitions of qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs) under regulations relating to certain qualified retirement plans that contain cash or deferred arrangements under section 401(k) or that provide for matching contributions or employee contributions under section 401(m). Under these regulations, employer contributions to a plan would be able to qualify as QMACs or QNECs if they satisfy applicable nonforfeitability and distribution requirements at the time they are allocated to participants' accounts, but need not meet these requirements when they are contributed to the plan. These regulations would affect participants in, beneficiaries of, employers maintaining, and administrators of tax-qualified plans that contain cash or deferred arrangements or provide for matching contributions or employee contributions.

In Estate of Ruben A. Myers, Deceased (T.C. Memo. 2016-11) the taxpayer asked the Court to review a determination by IRS Appeals sustaining a lien notice and a notice of proposed levy to collect delinquent installment payments of estate tax. The taxpayer claimed the IRS abused its discretion during the 10-year period before the delinquency by not pursuing collection from nonprobate assets not under the petitioner's control. Following the CDP hearing, the settlement officer prioritized collection actions first against nonprobate assets and certain jointly owned probate property. The Court noted the petitioner misunderstood the Sec. 6324(a)(1) special estate tax lien, which attaches automatically on the date of death to the gross estate without any action by the IRS and which lapses in 10 years. The petitioner also misunderstood the scope of the Court's review under Sec. 6330(d). The Court's narrow focus is on whether the settlement officer abused his discretion in sustaining the filing of the lien notice and the proposed levy notice. Moreover, the Court not remand this case for consideration of changed circumstances because the 10-year duration of the special estate tax lien lapsed during the pendency of this case after the IRS froze collection actions on the filing of the petition. Although the special estate tax lien has lapsed, the period for asserting Sec. 6324(a)(2) transferee liability may be open. The Court held the IRS Appeals' determination sustained.

Some time limits are absolute. In Yvonne A. Williams (T.C. Memo. 2017-10) the taxpayer tried to secure a refund of $3,439 that the IRS had applied from a 2011 return against a joint liability the taxpayer and her former husband for 2002 because the tax had been paid over two years before the filing of the taxpayer's request for relief from joint and several liability. The IRS generally can't refund a payment or credits if you filed your claim more than three years after the return was filed or two years after the tax was paid, whichever is later. The taxpayer requested equitable relief from the periods of limitation based on sympathy for her personal circumstances. The Court noted periods of limitation are not subject to waiver based on such circumstances.

Tip of the Day

Collectibles as investments? . . . Sounds like an easy way to amass a fortune. Buy artwork, autographs, rare books, a 1969 Camaro, or any number of other collectibles. But the approach isn't as foolproof as you might think. First, not every collectible goes up consistently; they often move in cycles. Some common collectibles that were worth big money in the early 90's won't command half that amount today. And vice versa. Second, old doesn't mean it's valuable. Often it's a combination of old, rare, in excellent condition, and in favor. Third, you've got to buy from the right source. A rare find at a flea market could be a great investment. Buying from a dealer often means waiting a long time to recover your investment. Fourth, the market can be very illiquid. That means you may not be able to get the best price when you want to sell. And you may have to use an auction house which can take a 10%. Fifth, buy low and sell high doesn't always work. You don't have to overpay for more than one or two items to offset the gain on a number of others. Sixth, if you do have a gain, it could be taxed at 28% rather than the lower capital gain rates applied to most investments. Having said all that, investing in collectibles can be rewarding from a personal as well as a monetary standpoint. Do your homework, learn the market, and start slow. Until you become an expert, keep the investment to a very small portion of your portfolio. But if you think it's the road to retirement, you're on the wrong street. Special note. IRAs generally can't invest in collectibles.


January 18, 2017


Notice 2017-15 provides special administrative procedures for allowing certain taxpayers and the executors of certain taxpayers’ estates to recalculate a taxpayer’s remaining applicable exclusion amount and remaining GST exemption to the extent an allocation of that exclusion or exemption was made to certain transfers made while the taxpayer was married to a person of the same sex.

In Lois Brodmerkle et vir (T.C. Memo. 2017-8) the Court agreed with the IRS the taxpayers had unreported income. The taxpayers failed to respond to the request for admissions, which resulted in the unreported income deemed admitted under Rule 90(c) and conclusively established pursuant to Rule 90(f). The Court found the IRS satisfied its burden of establishing a proper foundation of substantive evidence with regard to the alleged unreported income. The Court also found the taxpayers liable for the failure to file penalty. The taxpayers had argued they suffered from various medical conditions. The Court found that while these medical conditions have been compounded and exacerbated over the years, the conditions did not at the time prevent petitioners from timely filing their 2007 and 2008 tax returns.

Tip of the Day

How long to keep records? . . . The quick answer is three years from the date you filed your tax return. But there are plenty of exceptions where the holding period can be longer. Have inventory that sits on the shelf for a couple of years? Property where you're taking depreciation and will sell sometime in the future? Have carryforward passive losses? Or one or more net operating losses? The list goes on. And some states require holding certain records, such as payroll, longer. Fortunately, many taxpayers won't run into more than one or a couple of the exceptions. Talk to your accountant or tax adviser.


January 17, 2017


The IRS is reminding employers and tax professionals that effective last summer, Treasury Directive 9730 removed the automatic extension of time to file information returns on forms in the W-2 series (except Form W-2G) by the Jan. 31 due date. The directive replaces the 30-day automatic extension with a single, non-automatic, written extension request. The additional 30-day extension is no longer available.

The IRS has issued final (T.D. 9812) and proposed (REG-135734-14) regulations that identify certain stock of a foreign corporation that is disregarded in calculating ownership of the foreign corporation for purposes of determining whether it is a surrogate foreign corporation. These regulations also provide guidance on the effect of transfers of stock of a foreign corporation after the foreign corporation has acquired substantially all of the properties of a domestic corporation or of a trade or business of a domestic partnership. These regulations affect certain domestic corporations and partnerships (and certain parties related thereto) and foreign corporations that acquire substantially all of the properties of such domestic corporations or of the trades or businesses of such domestic partnerships.

The IRS and its private-sector partners announced the 2017 opening of Free File, the free tax software preparation program that gives eligible taxpayers a dozen options for brand-name products. Taxpayers can get a jump now on preparing their returns, and the companies will hold the returns until Jan. 23 when the filing season officially begins. Taxpayers also should remember that, by law, the IRS must hold refunds claiming the Earned Income Tax Credit or the Additional Child Tax Credit until Feb. 15. Anyone whose adjusted gross income in 2016 was $64,000 or less--that’s more than 70 percent of taxpayers--will be eligible for Free File software. People who earned more than $64,000 may use Free File Fillable Forms, the electronic version of IRS paper forms, which will be available for preparing taxes on Jan. 23. The various providers each have different criteria so the choice of providers may be limited for some taxpayers. For more information go to Free File: Do Your Federal Taxes for Free.

Tip of the Day

No double dipping . . . The potential double dipping situations vary, but the idea is you can't get the same tax benefit twice. For example, you're injured when you slip on the sidewalk in front of the grocery store and hurt your knee. The store quickly settles with you, paying your $30,000 for your injuries. You had no insurance at the time so you paid $5,000 for the emergency room and a doctor out of your own pocket. The $30,000 settlement normally isn't taxable, but because you received compensation for your injuries that wasn't taxable you can't take a deduction for the $5,000 you paid in medical bills.


January 13, 2017


The IRS is warning (IR-2017-3) of a phishing scheme targeting accounting and tax preparation firms nationwide. The scheme's objective is to collect sensitive information that will allow fraudsters to prepare fraudulent tax returns. These latest phishing emails come in typically two stages. The first email is the solicitation, which asks tax professionals questions such as "I need a preparer to file my taxes." If the tax professional responds, the cybercriminal sends a second email. This second email typically has either an embedded web address or contains a PDF attachment that has an embedded web address. In some cases, the phishing emails may appear to come from a legitimate sender or organization (perhaps even a friend or colleague) because they also have been victimized. Fraudsters have taken over their accounts to send phishing emails. The tax professional may think they are downloading a potential client's tax information or accessing a site with the potential client's tax information. In reality, the cybercriminals are collecting the preparer's email address and password and possibly other information. The IRS urges tax professionals and tax preparation firms to consider creating internal policies or obtain security experts' recommendations on how to address unsolicited emails seeking their services. One tip: Never respond to or click on a link in an unsolicited email or PDF attachment from an unknown sender. As the IRS, states and the tax industry make progress in the fight against identity theft, cybercriminals are becoming more sophisticated in their efforts to steal additional client information. Criminals need more data in their effort to impersonate clients and file fraudulent returns to claim refunds, and schemes like this can help in this effort.

You can be convicted of criminal tax evasion and be subject to the 75 percent civil fraud penalty. In Isidro Garza, Jr. et ux. (T.C. Memo. 2017-7) the wife pleaded guilty to criminal fraud. The Court held the wife was collaterally estopped from denying civil tax fraud under Sec. 6663 because she was convicted of criminal tax evasion for the same taxable year. A guilty plea is equivalent to a conviction after trial for the purpose of collateral estoppel. The wife's guilty plea conclusively establishes the elements necessary for finding fraud because the elements of criminal tax evasion and civil tax fraud are identical.

Tip of the Day

IRA contribution deadline . . . The deadline for making contributions to an IRA is the due date of the tax return, not including extensions. That means you have until April 15th (18th this year) to put the money in the account. You can file your return early, and wait until April 15th to make the deposit. If you file for an extension, you still must make the IRA contribution by April 15th.


January 12, 2017


An award of damages for physical injury or sickness is nontaxable. But in Ann McKinney (T.C. Memo. 2017-6) the award the taxpayer received from her employer was for discrimination and a hostile work environment on the bases of age and physical disability. The Court noted that for purposes of determining whether damages received pursuant to a written settlement agreement are excludable under Section 104(a)(2), the Court looks to the nature of the claim settled. The nature of the claim is determined first by looking to the settlement agreement itself for indicia of its purpose. Where the settlement agreement lacks express statements of purpose, we then look beyond the agreement to other evidence indicating the “intent of the payor as to the purpose in making the payment” such as, but not limited to, the amount paid, the factual circumstances that led to the settlement agreement, and the allegations in the payee's complaint and amended complaint. Here the settlement agreement did not provide an indicia as to whether the payment, or any portion thereof, was made pursuant to a claim of personal physical injuries or physical sickness. And, apart from her testimony, the taxpayer presented no evidence the payment was for personal physical injuries or physical sickness.

File your return late and you can be subject to a late filing and a late payment penalty. In Brian E. Harriss (T.C. Memo. 2017-5) the Court agreed with the IRS that the taxpayer was subject to a late filing penalty since he did not show reasonable cause for late filing. However, the Court declined to allow the failure to pay penalty. The Court noted that the Sec. 6651(a)(2) addition to tax applies only when an amount of tax is shown on a return filed by the taxpayer or prepared by the IRS. The taxpayer's return showed a tax of zero and there was nothing in the record to indicate that a substitute for return (SFR) meeting the requirements of Sec.6020(b) was ever prepared.

Tip of the Day

Age limit for IRA contributions . . . You can't make contributions to your traditional IRA for the year in which you reach age 70-1/2. You reach age 70-1/2 6 calendar months after your 70th birthday.


January 11, 2017


Auto usage, travel, and meals and entertainment are subject to strict substantiation requirements. In Michael Lombardi (T.C. Memo. 2017-4) the Court sided with the IRS in disallowing meal expenses where some of the receipts showed the expenses to be personal (as for single cups of coffee, meals with his wife), many of the receipts were illegible and the amount, time and/or place of the expenditure was not clear, and the business relationship between the taxpayer and the person being entertained was not indicated.

Taking money out of your IRA before age 59-1/2? Unless you meet one of the exceptions you'll be liable for a 10 percent penalty. And there are no exceptions to the distributions being taxable. In Candace Elaine (T.C. Memo. 2017-3) the Court rejected the taxpayer's claimed exception for financial hardship. The Court also rejected the claim the funds were used for medical insurance and student loan payments. While those are potential exceptions, her testimony was general and she was unable to produce any documentation substantiating her testimony. The Court did find the taxpayer not liable for the accuracy-related penalty. The Court noted the IRS had closed an earlier inquiry into the same issue and issued a no-change notice to the taxpayer.

Tip of the Day

Dominate something . . . That's one way to increase your sales and profitability. That doesn't mean you have to be number one in the country. You could be the number one in your town or county. Or you could be number one in a small portion of your business. You just want to be the "go to guy" for something. We know of one small company that sells a particular part used in most computers. The company is known nationally in the trade as the first place to call if you need this part. It's a small market, but he doesn't have to advertise. On a local level, you could do the same thing by carrying parts that no one else does, or, if you're in the service business, by having particular expertise. One HVAC contractor has garnered a reputation at installing and servicing high tech furnaces. Contractors, architects, etc. come to them first. That can have a spillover effect, increasing the rest of your business.


January 10, 2017


You may be able to escape the failure to file penalty if you can show reasonable cause, but there are very few excuses that will sway the IRS or courts. In Barry John Sullivan (T.C. Memo. 2017-2) the taxpayer filed an unsigned return with a signed check. The IRS mailed back the return some two months later and the taxpayer shortly thereafter signed and mailed back to the IRS. The Court noted that those circumstances clearly do not indicate willful neglect but appear to be a reasonable attempt to timely file and correct the lack of signature. However, in an earlier case, the Court held the mere fact that the taxpayer failed to sign the return because he "overlooked" it was not reasonable cause for failure to file. The Court sustained the IRS's late filing penalty.

Debt or equity? There's a big difference for both tax and accounting purposes. Tax law deals with debt and equity very differently. In John M. Sensenig et ux. (T.C. Memo. 2017-1) the taxpayer was the sole shareholder of an S corporation that provided high-risk capital to other companies, three of which were the focus of this case. The taxpayer also owned equity interests in these three companies. The Court noted that no loan documents were created for the advances to the three corporations and did not undertake the"due diligence" analysis of the borrowers that a typical creditor would have undertaken. In addition, there were superior creditors and the taxpayer never attempted to collect repayment of the advances. The Court held the advances were not loans but investments in equity, and they did not become worthless in the year at issue. The Court disallowed a business bad debt deduction for that year.

Tip of the Day

Home exclusion . . . You can exclude $250,000 ($500,000 if married, filing joint) in gain on the sale of your principal residence. If you receive the home as the result of a divorce, you're considered to have owned it for the same time period your spouse owned it.


January 9, 2017


The IRS has announced (Notice 2017-3, IRB 2017-2) the maximum value of employer-provided vehicles first made available to employees for personal use in calendar year 2017 for which the vehicle cents-per-mile valuation rule under Reg. Sec. 1.61-21(e) may be applicable is $15,900 for a passenger automobile and $17,800 for a truck or van. Where the fleet-average valuation rule under Reg. Sec. 1.61-21(d) is applicable is $21,100 for a passenger auto and $23,300 for a truck or van.

Notice 2017-12 (IRB 2017-4) provides guidance on the methods available to confirm the closing of an examination of the estate tax return. In addition, the notice announces that an account transcript with a transaction code of “421” and explanation “Closed examination of tax return” can serve as the functional equivalent of an estate tax closing letter in confirming the closing of an examination.

Tip of the Day

Electronic filing PIN . . . The IRS-generated PIN used to verify your signature on self-prepared electronic returns has been discontinued. This year, to validate your signature, you must used your prior-year adjusted gross income or prior-year self-select PIN. If you didn't file electronically last year, or don't have a PIN, you'll need your prior year adjusted gross income (AGI) to verify your identity. For more information, see the Form 1040 instructions.


January 6, 2017


The Joint Committee on Taxation has released a list of Federal tax provisions expiring between December 31, 2016 and December 31, 2025. For the complete list go to The Joint Committee on Taxation.

You can do business as a sole proprietorship, LLC, corporation, etc. but the income belongs to the entity that sells the product, performs the service, etc. In Ryan Fleischer (T.C. Memo. 2016-238) the taxpayer entered into a representative agreement with a financial services company which he signed in his personal capacity. He later entered into a contract with an insurance company, again in his personal capacity. The income from the contracts was reported by an S corporation set up by the taxpayer. The taxpayer received a salary and reported nonpassive income from the S corporation. The Court noted that the S corporation had not been set up at the time of the first contract and no mention was made of it in the second contract with the insurance company. The Court held the taxpayer failed one of the two tests used to determine who earned the income, there was no contract or other indicium recognizing the corporation's controlling position. The Court held the taxpayer, individually, should have reported the income.

In Kenneth Pitner (T.C. Memo. 2016-237) the Court found the IRS settlement officer (SO) did not abuse her discretion in denying the installment agreement proposed by the taxpayer. The SO reviewed the taxpayer's financial information and found his ability to pay exceeded his proposed monthly installment amount.

Tip of the Day

Everybody's doing it . . . That wasn't a good excuse for bad behavior in high school; it's worse when you're in business. Being on your best behavior when your competition isn't can make doing business difficult, but there are more laws today and a better chance of getting caught. Putting in a high bid to allow another contractor to get the deal so you can switch the next time is clearly illegal. There's a good chance you won't get caught; but if you do there's a better chance of prosecution than in the past. One multi-billion company got caught spying on employees and associates and found itself the object of full-page newspaper articles. Not the type of publicity you want. If you're unsure about the legality, talk to your attorney.


January 5, 2017


The PATH Act amended Secs. 6721 and 6722 to establish a safe harbor from penalties for failure to file correct information returns and failure to furnish correct payee statements for certain de minimis errors. Under the safe harbor, an error on an information return or payee statement is not required to be correct, and no penalty is imposed, if the error relates to an incorrect dollar amount and the error differs from the correct amount by no more than $100 ($25 in the case of an error with respect to an amount of tax withheld). Notice 2017-09 provides guidance on the safe harbor.

The IRS has issued final (T.D. 9808) and temporary regulations regarding withholding of tax on certain U.S. source income paid to foreign persons, information reporting and backup withholding with respect to payments made to certain U.S. persons, and portfolio interest paid to nonresident alien individuals and foreign corporations.

In Urve V. Moyer, Incompetent, Calvin L. Moyer, Next Friend (T.C. Memo. 2016-236) the IRS denied the taxpayer a deduction from her husband's S corporation. The IRS argued that the business conducted through the corporation was not engaged in for profit and therefore not an active trade or business. The Court looked at factors normally examined in Sec. 183 (hobby loss) situations and found the activity was not conducted in a business-like manner. The Court noted the business had declining revenue for a number of years and no gross receipts from 2009 to 2015 and there was no indication the husband expended much time and effort in attempting to make the business profitable. Moreover, the type of expenses that were deductions claimed by the corporation were personal in nature. The Court also denied the taxpayers a deduction for tax preparation expenses because she did not address the issue in an opening brief. The Court noted that issues not addressed in the opening brief are considered conceded.

Tip of the Day

Final estimated tax payment . . . It's due January 17 (the 15th is a Sunday; the 16th is Martin Luther King day). You can't make up for underpayments in prior quarters, but you can stop additional penalty accumulations. Ready to file your return? If you file by January 31 and pay any tax due, you don't have to make the last payment. Special rules apply to farmers and fisherman who get at least two-thirds of their income from those sources. The 17th is their one and only required payment. If you're a farmer or fisherman and file and pay by March 1, you don't have to make that payment.


January 4, 2017


The IRS has updated the list of counties in North Carolina that are eligible for relief from Hurricane Matthew that took place beginning October 4, 2016. The additional counties include Franklin and Montgomery.

Rev. Proc. 2017-2 (IRB 2017-1) explains when and how an Associate office provides technical advice, conveyed in a technical advice memorandum (TAM). It also explains the rights that a taxpayer has when a field office requests a TAM regarding a tax matter. Rev. Proc. 2016-2 superseded.

Rev. Proc. 2017-3 (IRB 2017-1) updates Rev. Proc. 2016-3 by providing a revised list of those areas of the Code under the jurisdiction of the Associate Chief Counsel (Corporate), the Associate Chief Counsel (Financial Institutions and Products), the Associate Chief Counsel (Income Tax and Accounting), the Associate Chief Counsel (Pass-throughs and Special Industries), the Associate Chief Counsel (Procedure and Administration), and the Associate Chief Counsel (Tax Exempt and Government Entities) (TEGE) relating to issues on which the IRS will not issue letter rulings or determination letters. For a list of areas under the jurisdiction of the Associate Chief Counsel (International) relating to international issues on which the Service will not issue letter rulings or determination letters, see Rev. Proc. 2017-7 (IRB 2017-1).

Tip of the Day

Tax exempts less attractive . . . If tax rates drop as anticipated, tax exempt securities will be less attractive. How much? That depends on several factors, including your tax rate and the change in your tax rate. There's no reason to dump your holdings, but you may want to review them and you may want to consider any additional purchases more carefully. Many tax exempts have other virtues. They are often safer than corporate bonds and they pay more than many bank deposits.


January 3, 2017


The IRS has issued final (T.D. 9807) and proposed (REG-123841-16) regulations under Section 6041 regarding the filing of information returns to report winnings from bingo, keno, and slot machine play. The rules update the existing requirements regarding the filing, form, and content of such information returns; allow for an additional form of payee identification; and provide an optional aggregate reporting method. The final regulations affect persons who pay winnings of $1,200 or more from bingo and slot machine play, $1,500 or more from keno, and recipients of such payments.

Rev. Proc. 2017-14 discusses the requirements for a CPEO (certified professional employer organization) to remain certified and the procedures relating to suspension and revocation of CPEO certification, and consolidates in one place the ongoing requirements articulated in the regulations (both proposed and temporary) under sections 3511 and 7705 of the Code as well as certain applicable requirements of Rev. Proc. 2016-33, as modified by Notice 2016-49. In addition, this revenue procedure provides guidance, including certain transition relief, to CPEOs with an effective date of certification of January 1, 2017, that receive notice of certification after that date.

Tip of the Day

Disability benefits . . . If you received disability benefits from a welfare fund, a state fund, or an insurance company if your employer paid the premiums, the benefits are taxable. On the other hand, if you paid the premiums on the insurance policy, the benefits are not taxable. Worker's compensation payments are for occupational injuries and fall in a different category and are nontaxable.


December 30, 2016


The IRS has issued proposed regulations (REG=112324-15) prescribing mortality tables to be used by most defined benefit pension plans. The tables specify the probability of survival year-by-year for an individual based on age, gender, and other factors. This information is used (together with other actuarial assumptions) to calculate the present value of a stream of expected future benefit payments for purposes of determining the minimum funding requirements for the plan. These mortality tables are also relevant to determining the minimum required amount of a lump-sum distribution from such a plan. In addition, this document contains proposed regulations to update the requirements that a plan sponsor must meet in order to obtain IRS approval to use mortality tables specific to the plan for minimum funding purposes (instead of the generally applicable mortality tables). These regulations affect participants in, beneficiaries of, employers maintaining, and administrators of certain retirement plans.

As a shareholder in an S corporation you can only deduct losses up to your basis. Basis includes your equity investment (adjusted for profits and losses) and any direct loans you make to the corporation. In Bobby R. Hargis et ux. (T.C. Memo. 2016-232) the IRS claimed the taxpayer were not entitled to an increase in basis for debt the corporations incurred where the taxpayer was a coborrower or guarantor of the loans. The Court sided with the IRS despite the taxpayer's argument that under State law he was directly liable for the loans as coborrower. The IRS also claimed the taxpayer could not claim basis for loans made by related operating companies. Again, the Court sided with the IRS.

Tip of the Day

Hackers from within . . . Businesses (and individuals) are concerned about outsiders getting into their computers, stealing data, corrupting files, etc. But many problems arise from individuals inside the firewall either getting into data and corrupting files, accessing data that should not be available to them, etc. Not worried about insiders? How would you like it if an unauthorized employee got employment data, salary information, financial reports, special studies, etc. It can be worse if you have customer information on file. You may trust most of your employees like family, but all you need is one. Talk to an computer professional about what you can do to safeguard files. And, at the very least, use the password protection that's built into most current software. Disgruntled employees can be your worst nightmare.


December 29, 2016


The IRS has issued final regulations (T.D. 9806) that provide guidance on determining ownership of a passive foreign investment company (PFIC) and on certain annual reporting requirements for shareholders of PFICs to file Form 8621, “Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.” In addition, the final regulations provide guidance on an exception to the requirement for certain shareholders of foreign corporations to file Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations.” The regulations finalize proposed regulations and withdraw temporary regulations published on December 31, 2013. The final regulations affect United States persons that own interests in PFICs, and certain United States shareholders of foreign corporations.

You won't win your case if you don't show up in court. In Nathan A. Peake (T.C. Memo. 2016-231) the Court found the IRS established by clear and convincing evidence that the taxpayer intended to evade tax with respect to the years 2002 through 2007. The Court noted the IRS showed the taxpayer (1) failed to maintain adequate books and records as required by the Code and the regulations; (2) received substantial cash withdrawals; (3) structured his cash withdrawals so that each such withdrawal was in an amount less than $10,000 in an attempt to avoid certain Federal reporting requirements; (4) knew that he was required to file returns but willfully did not file returns; (5) consistently and substantially understated income; (6) was convicted under section 7201 for tax evasion with respect to his taxable year 2004; (7) was convicted under 18 U.S.C. sec. 371 for conspiracy to commit bank and wire fraud; (8) completely failed before the February 8, 2016 Baltimore trial session to cooperate with the IRS's counsel in order to prepare this case for trial and/or to attempt to settle it; and (9) failed to appear at the call of this case from the calendar for the February 8, 2016.

Think twice before arguing you never received correspondence the IRS claimed it sent. In Sara Archer et vir (T.C. Memo. 2016-230) the taxpayers claimed they never received the IRS deficiency notices for the two tax years at issue. The IRS presented a certified mail return receipt with the wife's signature and a delivery date. The husband argued he didn't receive his notice. The IRS showed proper mailing, switching the burden of proof of nondelivery on the taxpayer. The taxpayers failed to show the Court that they never received the notices.

Tip of the Day

Form 1099s soon on the way . . . In fact you may have already received some. If your shares are not held in your broker's name, you may have already received your last dividend and along with it a Form 1099-DIV. But if not now, 1099s will be arriving soon. Accountant's see the range of recordkeeping--some of it great, some good, but a lot of it makes them cringe. At a bare minimum, put all the incoming documents in one spot, preferably a large envelope, box, etc. Open the envelopes and check the contents. Your accountant shouldn't have to sort through all sorts of extraneous materials to find a couple of numbers.


December 28, 2016


Some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount invested. Notice 2017-10 (IRB 2017-04) alerts taxpayers and their representatives that certain syndicated conservation easement transactions are tax avoidance transactions and identifies these transactions, and substantially similar transactions, as listed transactions.

In general, Secs. 483 and 1274 determine the principal amount of a debt instrument given in consideration for the sale or exchange of nonpublicly traded property. In addition, any interest on a debt instrument subject to Sec. 1274 is taken into account under the original issue discount provisions of the Code. Section 1274A, however, modifies the rules under Secs. 483 and 1274 for certain types of debt instruments. Rev. Rul. 2016-30 (IRB 2016-52) provides the dollar amounts, increased by the 2017 inflation adjustment for Sec. 1274A. Under Sec. 274A(b) (qualified debt instrument) the 2017 amount is $5,717,400; under Sec. 1274A(c)(2)(A) (cash method debt instrument) the 2017 amount is $4,083,800.

You must report your share of partnership or S corporation income (reported on a K-1), whether or not you receive any distributions. In Walter S. Mack, Jr. et ux. (T.C. Memo. 2016-229) the taxpayer argued that the husband's fiduciary duties under State law required him to pay partnership expenses to keep the firm from failing (its capital position was negative). The Court noted that because the available money had allegedly not been paid out to the taxpayer, but a portion had been used to pay firm expenses, the taxpayer evidently felt it should not be treated as income to him. The Court held that the taxpayer had to report as income his distributive share of the partnership income shown on the K-1. Amounts put back in the partnership should be recorded as a contribution to capital.

Tip of the Day

Not every business doing well . . . While most businesses are doing far better than a few years ago, not every business is flush with cash. It could be poor management, a casualty, competition, a heavy debt load or any number of other possible reasons, but businesses do fail and have cash flow problems even in the best of times. This isn't the time to relax your credit checks on new and existing customers. In particular, don't become complacent with existing customers. Action should be taken with respect to a customer who changes his payment habits for the worse. You don't want things to get so out of hand that you can't collect. If you're unsure of what to do, talk to your accountant.


December 27, 2016


Conversation easements can generate substantial deductions, but the rules are strict. In 15 West 17th Street LLC (147 T.C. No. 19) the partnership return LLC claimed a charitable contribution deduction of $64,490,000. In order to substantiate a charitable contribution deduction of $250 or more, a taxpayer must secure and maintain in its files a “contemporaneous written acknowledgment” (CWA) from the donee organization. The CWA must state (among other things) whether the donee provided the donor with any goods or services in exchange for the gift. The substantiation requirements do not apply to a contribution “if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe,” that includes the information specified in subparagraph (B) (Sec. 170(f)(8)(D)) To date, the IRS has not issued regulations to implement the donee-reporting regime referred to in subparagraph (D). The IRS audited the LLC's 2007 return and disallowed the charitable contribution deduction in its entirety. After the case was docketed in this Court, the donee organization submitted an amended Form 990, Return of Organization Exempt from Income Tax, that included the information specified in subparagraph (B). The partnership filed a motion for partial summary judgment, contending that this action by the donee eliminated the need for a CWA to substantiate LLC's gift. The Tax Court held that Sec. 170(f)(8)(D) sets forth a discretionary delegation of rulemaking authority, and it is not self-executing in the absence of the regulations to which the statute refers. The Court also held that the general rule set forth in subparagraph (A), requiring a CWA meeting the requirements of subparagraph (B), is fully applicable to the gift at issue.

There aren't many valid excuses for failing to file a return. In Suzanne D. Oster Ozimkoski (T.C. Memo. 2016-228) the Court noted that a taxpayer is not liable for the failure to file penalty if he can show the untimeliness is due to reasonable cause and not due to willful neglect. If a taxpayer exercises ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to reasonable cause. Willful neglect is a conscious, intentional failure or reckless indifference. Here the taxpayer's only explanation for delay in filing the return centered around her role as the personal representative of her husband's estate and that she was overwhelmed by circumstances surrounding the will contest. The Court was sympathetic, but has held in the past that litigation is not reasonable cause for untimely filing a return.

Tip of the Day

Don't bill for everything . . . Giving advice without your customer or client getting a bill can go a long way to improve a relationship. It's not unusual for a client to call asking a simple, no think question. For example, a client might ask a CPA how much he can give to his daughter without paying gift tax consequences. You know the answer without having to research it. Sending a bill for 6 minutes isn't going to help your relationship with the client. Of course, you've got to make sure the client isn't trying to take advantage this practice.


December 23, 2016


TThe IRS is issuing an alert to warn e-Services account holders of an uptick in a previously reported scam designed to capture usernames and passwords. If you receive and unsolicited email you suspect could be a scam, please forward it unopened to If e-services users have already clicked on the fake logo and provided their username and password, they should contact the e-services help desk to reset their accounts.

Tip of the Day

Basis other than cost . . . Your basis, for depreciation and gain or loss purposes, is generally your cost. For example, you purchase a small building for your business. The basis is your cost. That amount is adjusted over the years for improvements (an increase) or depreciation (a decrease). But not all property is acquired through a straight purchase. You cannot use your cost as basis for property you received:

And how you determine your original basis is different in each case.


December 22, 2016


Notice 2017-6 (IRB 2017-3) extends the waiver of the 5-year eligibility rule set out in section 5.01(1)(f) of Rev. Proc. 2015-13, (which Revenue Procedure was clarified and modified by Rev. Proc. 2015-33, Rev. Proc. 2015-24, and modified by Rev. Proc. 2016-1, Rev. Proc. 2016-1) that was provided under Rev. Proc. 2016-29, Rev. Proc. 2016-21, for making certain automatic changes in accounting methods. Specifically, this notice extends this eligibility rule waiver for one year to any taxable year beginning before January 1, 2017, for taxpayers making certain automatic changes to utilize the final tangible property regulations under Secs 162(a) and Sec. 263(a) and for making certain automatic changes to depreciation and dispositions under Section 168 of the Code.

Years of losses with no or nominal profits are one indication the courts examine when deciding if an activity was or was not engaged in with a profit motive. In Jerald L. Carmody (T.C. Memo. 2016-225) the Court noted that the possibility of a speculative profit in a future year or beyond is insufficient to outweigh the absence of profits for a sustained period of time (some 20 years in this case). The Court looked at the other factors the courts normally examine when deciding this question and found only one factor, the time spent by the taxpayer in the activity was in his favor. Two of the other factors were neutral and the other five weighed in favor of the IRS. The Court sided with the IRS in denying the losses.

Tip of the Day

Year-end basis considerations . . . If your S corporation, LLC or partnership or sole proprietorship has a loss for the year you should check to see if you have sufficient basis to utilize the loss. If you don't have enough basis the losses will be carried forward to a year when you do. You can increase your basis by making a capital contribution or a direct loan to the entity. But don't automatically assume you want to take the loss this year. Taking the loss, or part of it, next year could make sense depending on your particular tax situation. Talk to your tax advisor. There isn't much time left.


December 21, 2016


Notice 2016-81 IRB 2017-02 provides interim definitions of the terms “chassis” and “body” for purposes of the retail excise tax on heavy trucks, trailers, and tractors imposed by Section 4051(a) and for purposes of applying the safe harbor provision in Section 4052(f)(1). The notice also requests comments on these interim definitions.

The IRS is reminding taxpayers that an appointment is required for in-person tax help at all IRS Taxpayer Assistance Centers (TAC). All IRS TACs now provide face-to-face service by-appointment. Instead of taxpayers going directly to their local TAC, they can call 844-545-5640 to reach an IRS representative, who is trained to either help them resolve their issue or schedule an appointment for them to get the help they need. The Contact Your Local Office tool on helps taxpayers find the closest IRS TAC, the days and hours of operation, and a list of services provided. Studies show most taxpayers visit a TAC to make payments, inquire about a notice, ask about a refund, get a transcript or obtain a tax form. Many of these issues can be resolved at without traveling to an IRS office. Check IRS Publication 5136, the IRS Services Guide for additional information on available services.

In Wasco Real Properties I, LLC, et al. (T.C. Memo. 2016-224) there were three entities treated as partnerships in the business of farming almonds. Each partnership (P1, P2 and P3) financed the purchase of land, all or a portion of which it used to plant and grow almond trees for use in its business. The financing was from third parties, except that P1 also borrowed funds from P2 and P3, which contemporaneously had borrowed those funds from a third party. P2 and P3 paid interest to the third party as to the funds they lent to P1, but P1 did not pay any interest to P2 or to P3. The partnerships deducted the interest that they paid to the third parties. P1 also deducted property taxes that it paid as to its land. The IRS disallowed the deductions on the grounds that Sec. 263A requires that the taxes and the interest be capitalized rather than deducted. The IRS also made adjustments under Sec. 481 to reflect a change in method of accounting for each partnership with respect to the taxes and the interest. The Tax Court held that Sec. 263A(a)(2)(B) requires that P1 capitalize the property taxes corresponding to the portion of its land on which it grew almond trees in that this portion of the taxes is an allocable, indirect cost of P1's growing (and thus producing) the almond trees. The Court also held that Sec. 263A(a) and (f)(1) and (2) require that each partnership capitalize the interest corresponding to the portion of its land on which it grew almond trees in that this portion of the interest is allocable to the almond trees, the property that each partner produce. The Court also held that the antiabuse rule in Reg. Sec. 1.263A-15(c) requires to the extent stated herein that P2 and P3 capitalize the interest they paid to the third party with respect to the funds they contemporaneously lent to P1 in that their loans to P1 were related party transactions that avoided the interest capitalization rules of Reg. Secs. 1.263A-8 through 1.263A-15 and did not carry out the purposes of Sec. 263A(f). Finally, the IRS's adjustments under Sec. 481 were sustained to the extent that the partnerships must change their methods of accounting to capitalize the taxes and the interest in lieu of deducting those items currently.

Tip of the Day

Raising prices? . . . If there's considerable competition in the market, raising prices is often difficult. But price increases can be an issue even if you have little or no direct competition. In the latter case you can boost prices but abrupt increases are likely to cause your customers to consider alternatives. In some cases that may mean substituting another part that may or may not be a direct replacement, it could be the customer is more careful to reduce waste when using your product, or, if the price increase is high enough it could result in the customer redesigning the product to avoid using your product altogether. In some situations the customer has found it attractive to make the product or perform the service in house. You should understand the price sensitivity of your product before instituting big increases.


December 20, 2016


The IRS has announced the Applicable Federal Rates for January 2017. The Applicable Federal Rates used to determine loans between related parties, etc. are up substantially from last month. The January rates do not take into account the recent hike by the Federal Reserve. Of particular note was the jump in the rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest.

Notice 2017-1 (IRB 2017-2) provides guidance on Section 7528(b)(2) of the Code, relating to an exemption from the requirement to pay a user fee for certain requests to the IRS for determination letters with respect to the qualified status of pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans maintained by small employers. This notice is being issued as a result of changes made to the determination letter program and remedial amendment period rules set forth in Rev. Proc. 2016-37.

The IRS has issued temporary (T.D. 9805) and proposed (REG-140328-15) regulations that provide guidance regarding the distribution by a distributing corporation of stock or securities of a controlled corporation without the recognition of income, gain, or loss. The temporary regulations provide guidance in determining whether a corporation is a predecessor or successor of a distributing or controlled corporation for purposes of the exception under Section 355(e) to the nonrecognition treatment afforded qualifying distributions, and they provide certain limitations on the recognition of gain in certain cases involving a predecessor of a distributing corporation. The temporary regulations also provide rules regarding the extent to which Section 355(f) causes a distributing corporation (and in certain cases its shareholders) to recognize income or gain on the distribution of stock or securities of a controlled corporation. These temporary regulations affect corporations that distribute the stock or securities of controlled corporations and the shareholders or security holders of those distributing corporations.

FinCEN (Financial Crimes Enforcement Network) has announced it has again extended the deadline for filing certain FBARs as a result of the notice of proposed rulemaking (NPRM) while would expand the exemptions for certain U.S. persons with signature or other authority over foreign financial accounts.

Tip of the Day

Interest rates moving up . . . The Fed raised rates and that's bad news if you've got an adjustable rate mortgage or home equity line of credit or if you're looking for a new mortgage. It'll also impact the cost of a new business loan or a variable rate loan. The same is true for credit cards and auto loans and leases. But not all rates will go up equally or as quickly. Home mortgage rates may not rise as quickly as those tied directly to the prime or some other benchmark. What about what the bank will pay you on a savings account or CD? Increases here are likely to be much more subdued. Additional increases in rates are expected in 2017. It still makes more sense to pay down credit card debt than putting more in the bank, assuming you have enough to cover emergencies.


December 19, 2016


The IRS has issued final regulations (T.D. 9803) relating to certain transfers of property by United States persons to foreign corporations. The final regulations affect United States persons that transfer certain property, including foreign goodwill and going concern value, to foreign corporations in nonrecognition transactions described in Section 367 of the Code. The regulations also combine certain sections of the existing regulations under Section 367(a) into a single section. This document also withdraws certain temporary regulations. The regulations deal with the tax treatment of outbound transfers of foreign goodwill and going concern value.

You might escape the accuracy-related penalty on a tax deficiency if you can show reliance on a tax professional. There are three requirements that must be met--(1) the adviser was a competent professional who had sufficient expertise to justify reliance, (2) the taxpayer provided necessary and accurate information to the adviser, and (3) the taxpayer actually relied in good faith on the adviser's judgment. In John J. Hynes, Jr. et ux. (U.S. Court of Appeals, First Circuit) the taxpayers failed to show the second and third of those elements and the Court affirmed the Tax Court penalty.

Tip of the Day

Holiday charity . . . You may feel better by putting a five dollar bill in the kettle outside the mall at this time of the year, but save your significant contributions for the more formal approach of cutting a check, and, if the contribution is over $250 include enough information for the charity to send you an acknowledgment. You can't deduct any contributions where you can't prove payment. A check, credit card statement, etc. is sufficient, but only for contributions of $250 and less.


December 16, 2016


T.D. 9804 contains final regulations relating to the health insurance premium tax credit (premium tax credit). These final regulations affect individuals who enroll in qualified health plans through Health Insurance Exchanges (Exchanges, also called Marketplaces) and claim the premium tax credit, and Exchanges that make qualified health plans available to individuals and employers. These final regulations also affect individuals who are eligible for employer-sponsored health coverage.

In Naren Chaganti (T.C. Memo. 2016-222) the Court allowed the taxpayer a per diem deduction for meals and incidental expenses while traveling away from home. The taxpayer failed to meet the strict substantiation requirements of Sec. 274 with respect to the amount of the expense, but the IRS conceded that the taxpayer did make business-related travel away from home. The taxpayer argued that he was also allowed to use the per diem amount for lodging, but the Court noted that self-employed individuals are not eligible to use per diem amounts for lodging. In addition, the taxpayer failed to provide evidence to show he incurred actual lodging expenses.

Tip of the Day

Proper procedure important when going to court . . . In a recent case the taxpayer tried to quash a third party the IRS wanted to serve on their bank to obtain bank records. The court noted that one of the procedural requirements that must be met before the a court will rule is that the taxpayer must serve a copy of the petition on the third party, in this case the bank. The court ruled as a result it lacked both subject matter and personal jurisdiction with respect to the dispute. Procedure is often more important than who's right and who's wrong. In a dispute with a taxpayer the IRS has certain procedures that have to be followed. Sometimes substantial compliance may suffice. But once the dispute escalates to a court, procedures are generally strictly followed.


December 15, 2016


The President has signed the 21st Century Cures Act. The bill passed the House and Senate by wide margins. One of the provisions of the bill allows small businesses that meet certain criteria to use qualified small business Health Reimbursement Accounts (HRAs) without incurring the penalties in the Patient Protection Affordable Care Act. Under the new law the amount of payments and reimbursements for any year can not exceed $4,950 ($10,000 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee).

It's not unusual for two entrepreneurs to join forces to operate a business with each dividing the income and expenses and reporting it on a Schedule C. That was the case in Chinweike Nwabasili (T.C. Memo. 2016-220). The taxpayer and his brother promoted musical performances and bought used cars which they shipped and sold in Nigeria. To further complicate the case, the taxpayer contended that some payments were made to his brother who then paid the ultimate vendor. The Court found that the taxpayer and his brother had intended to enter into a partnership to operate the two businesses. Since a partnership existed, the income and expenses of the businesses had to be reported on a partnership return and not directly by the partners.

Tip of the Day

Required minimum distribution . . . You're required to begin taking distributions from your qualified retirement plan, traditional IRA, Sec. 453, and 457 plan by April 1 of the year following the year you reach age 70-1/2. The penalty for failure to do so is equal to 1/2 of the amount you should have, but didn't, take. That means you can delay your first distribution until the following year (by April 1), but that also means you'll have to take a second distribution in that same year. The higher income could result in a bigger tax bite than if you took your first distribution in the earlier year. Another point. While some taxpayers may be able to delay the initial distribution until they retire, that's not an option in the case of IRAs or if you are a 5% or larger owner in your business. Your bank or broker may alert you to the required distribution, but don't count on it.


December 14, 2016


Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. For additional information see Rev. Proc. 2010-51 and Notice 2016-79.

. T.D. 9796 contains final regulations that treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for the limited purposes of the reporting, record maintenance and associated compliance requirements that apply to 25 percent foreign-owned domestic corporations under Section 6038A of the Code.

Notice 2016-80 (IRB 2016-52) contains the 2016 Required Amendments List for individually-designed qualified retirement plans. The list identifies certain changes in qualification requirements that became effective in 2016 that may require a retirement plan to be amended in order to remain qualified, and establishes the date by which any necessary amendment must be made.

Tip of the Day

Put the product's benefits first . . . Faster, cheaper, more powerful, longer lasting. A potential customer wants to know up front why he should consider the product or service. Work the benefit you want to emphasize into the headline. Then mention the other benefits as soon as possible. If you don't get their interest they won't read the copy. And if they don't read the copy, you've wasted your ad money.


December 13, 2016


The IRS is reminding(IR-2016-168) eligible employees that now is the time to begin planning to take full advantage of their employer's health flexible spending arrangement (FSA) during 2017. FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Eligible employees need to decide how much to contribute through payroll deductions before the plan year begins. Interested employees wishing to contribute during the new year must make this choice again for 2017, even if they contributed in 2016. Self-employed individuals are not eligible. An employee who chooses to participate can contribute up to $2,600 during the 2017 plan year. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee's FSA.

Notice 2016-77 relates to allocations of low-income housing credits to projects and serves as a reminder to taxpayers that a project located in a qualified census tract is not described in Sec. 42(m)(1)(B)(ii)(III) of the Code unless the project’s development contributes to a concerted community revitalization plan.

Revenue Ruling 2016-29 relates to allocations of low-income housing credits to projects and clarifies that Sec. 42(m)(1)(A)(ii) of the Code neither requires nor encourages State housing credit allocating agencies to reject the proposed development of a low-income housing project that does not obtain the approval of the locality where the project is proposed to be developed.

Tip of the Day

Investing in real estate? . . . You're not alone in considering putting some of your portfolio in real estate. In fact, that's one of the reasons prices have increased so rapidly in many markets. There are a number of pros and cons. Here are some points to consider:

Real estate can be a great investment, but it's an inherently long-term one. It's illiquid and a significant investment.


December 12, 2016


In Estate of Steve K. Backemeyer, Deceased, Julie K. Backmeyer, Personal Representative, and Julie K. Backemeyer (147 T.C. No. 17) were husband and wife. The husband was a sole proprietor farmer. He purchased certain farm inputs in 2010 intending to use them to cultivate crops the following year. The husband, a cash-method taxpayer, deducted his expenditures on the inputs under Sec. 162 for that same tax year. He died in March 2011 not having used any of the purchased farm inputs. They were subsequently transferred to his wife, who began her own farming business as sole proprietor upon her husband's death. The wife used all the farm inputs in 2011 to grow crops that were then sold in 2011 and 2012. She deducted for tax year 2011 an amount equal to the value of the farm inputs inherited from her husband. The Court held the tax benefit rule does not require the recapture upon the husband's death in 2011 of deductions he claimed for 2010 for his expenditures on the farm inputs. The Court also held the Sec. 6662 accuracy-related penalty for a substantial understatement of income tax did not apply, since the wife's deductions of the inputs under Sec. 162 were appropriate, and the sole denied deduction conceded by the petitioners was not large enough to merit imposition of the penalty.

Tip of the Day

Location, location, location . . . You've heard that before. It's still true. But locations change. The store you've rented for 15 years that provided fantastic results for many years started getting tired 3 years ago when sales fell off despite your efforts. Maybe the neighborhood changed, maybe one or more stores that brought shoppers to your area left, or maybe competition moved in. Whatever the reason, evaluate your situation on a regular basis. It may be time to move, or maybe you can convince your landlord to give you a break on the rent. Chances are if you rent you've got a 3, 5 or 10-year lease. Analyze your situation well ahead of the expiration.


Copyright 2016 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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