Small Business Taxes &
ManagementTM--Copyright
2024, A/N Group, Inc.
For the full text of new Revenue Rulings, Revenue Procedures,
Regulations, etc. go to:
Internal
Revenue Bulletins
For a Tax Court Case:
Tax
Court Cases
For IRS News Releases (current month):
News
Releases and Fact Sheets
For Fact Sheets:
Fact
Sheets
For Letter Rulings and Technical Advice
Memoranda:
IRS
Written Determinations
For IRS Forms and
Publications:
Forms
and Publications
July 26, 2024
A quarterly update by the IRS (IR-2024-196) highlights the expansion of various online tools and other service improvements. As part of ongoing transformation efforts, the IRS announced continued progress on a variety of taxpayer service and technology projects using Inflation Reduction Act (IRA) funding that expand online tools and digital services. The IRS highlighted improvements, including six new features to help taxpayers using the Individual Online Account, a new Spanish version of the Business Tax Account tool and the availability of amended business forms that can be filed electronically. In addition, the IRS announced hitting the milestone of 1 million submissions through the Document Upload Tool and more special Community Assistance Visits to help taxpayers in underserved parts of the country. Also reported was the ability to file amended returns electronically, a redesign of IRS notices that taxpayers receive, and more in-person help at rural locations. The IRS is also continuing work to ensure large corporate, large partnership and high-income individual filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying their share. The IRS is now taking a variety of steps to close this gap. For more information and links to other resources, click on the link above.
Tip of the Day
Interest rate quandry . . . With interest rates the highest they've been in years it might make sense to invest in bonds. While bonds may sound simple to understand they can be deceptively complex. For one the market is thinner and you may not get the best price on the purchase and on the sale. So holding short term may not be worth it. For another paying a premium can be risky of the bond is callable, and many are. That means the issuer can redeem the bond after a certain date and at a certain price. If you're not familiar with bonds, and sometimes even if you are, it still could make sense to buy into a fund rather than the actual bonds.
July 25, 2024
Keeping good books and records is critical to a business. It's also critical to the IRS. If the IRS finds the records inaequate it can reconstruct your income by one of serveral methods. And the burden of proof is on you to show the IRS is wrong. That proof must be with a preponderance of the evidence, a steep hill to climb. In Essel Eyewear, Inc. (T.C. Memo. 2024-11) the IRS used the bank deposits method to recontruct the taxpayers income. While the income amounts were not significantly increased by only a small percentage ($11,000 for one year and $25,894 the next) a substantial portion of the taxpayers cost of goods sold for one year and a number of other expenses. To make matters worse, the taxpayer failed to respond to some required filings and facts were deemed admitted and the Court sustained the IRS's disallowance of deductions and the additional income. Finally the Court allowed the imposition of the 20% accuracy related peanlty.
Tip of the Day
Loss leaders . . . They may be used to get people into the store to buy other items, provide a perk, etc. One of the most famous one is the safety razor. A company can give the razor away and generate an overall profit by selling the proprietary blades. But it doesn't always work. The razor cost you too much to make and you're not selling enough blades. What sounded like a great idea around the conference table may not work out well in the real world. Make sure the approach is tested before committing.
July 24, 2024
You may be able to avoid the accuracy-related penalty if you can show you relied on a professional tax preparer (and met other requirements). But in the case of Stephanie Murrin (T.C. Memo. 2024-10) the tax preparer entered false or fraudulent date on the taxpayer's return with an intent to evade tax. The taxpayer argued that the statute of limitations of three years should apply to the return but the Tax Court read the law differently and in the case of fraud a six year limitations period normally applies and should in this case because fraud occurred. The fact that the fraud was perpetrated by the tax preparer and not the taxpayer made no difference.
Tip of the Day
Expiration of Tax Cuts and Jobs Act . . . The lower tax rates and other changes made by the Tax Cuts and Jobs Act of 2017 expire at the end of 2025. The big question is will they be extended? Expanded? Obviously much depends on the election this year. If the Republicans have a mandate there could be more cuts, many likely to be beneficial to higher income taxpayers. But what if the Democrats win? There could be tax increases for higher income individuals, a slightly higher corporate tax rate, and additional loophole closing, but it seems unlikely that taxes would go up for most taxpayers with incomes of less than $400,000. For one thing to do so would jeopardize an economy that is not as robust as might be desired and further impact consumers hurting from the inflation pressures of the past few years.
July 23, 2024
The IRS announced (IR-2024-191) tax relief for individuals and businesses in 67 Texas counties affected by Hurricane Beryl that began on July 5, 2024. These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). This means that individuals and households that reside or have a business in Anderson, Angelina, Aransas, Austin, Bowie, Brazoria, Brazos, Burleson Calhoun, Cameron, Camp, Cass, Chambers, Cherokee, Colorado, Dewitt, Fayette, Fort Bend, Freestone, Galveston, Goliad, Gregg, Grimes, Hardin, Harris, Harrison, Hidalgo, Houston, Jackson, Jasper, Jefferson, Kenedy, Kleberg, Lavaca, Lee, Leon, Liberty, Madison, Marion, Matagorda, Milam, Montgomery, Morris, Nacogdoches, Newton, Nueces, Orange, Panola, Polk, Refugio, Robertson, Rusk, Sabine, San Augustine, San Jacinto, San Patricio, Shelby, Trinity, Tyler, Upshur, Victoria, Walker, Waller, Washington, Webb, Wharton and Willacy counties qualify for tax relief. The same relief will be available to any other counties added later to the disaster area. The current list of eligible localities. Click on the link above or TX-2024-08 for more information.A closing agreement with the IRS is intended to settle a taxpayer's liability (or the tax effects of a transaction). Closing agreements are considered to be final and legally binding on both the taxpayer and the IRS. In Michael W. Aubin and Kerry A. Aubin (T.C. Memo. 2024-9) the issue was the taxpayers' election to exclude foreign earned income (Sec. 911). The taxpayers waived the right to do so, but, after signing the closing agreement asserted there was forgery in another, similar, case involving closing agreements that there was the possibility of forgery. The Court held that an allegation of forgery in another case does not, by itself, provide sufficient grounds to justify relieving a taxpayer of a stipulation that he signed a document and that the taxpayers were bound by their stipulation that the husband signed the closing agreement.
Tip of the Day
Expense report fraud . . . If your employees incur expenses outside the company and you reimburse, there's a good chance one or more of them are padding their expenses. Sometimes it's small or maybe inadvertent (e.g., putting a small personal expense on the company card by accident), but if you've got 5 employees with company cards, there's a good chance at least one of them is taking some serious money out of your business. The first step is to make sure employees produce expense reports on a regular basis, at least monthly. Second, make sure someone is checking them, at least on a random basis. If an employee thinks no one is checking, you're asking for trouble. Third, make sure they turn in receipts to support the expense, with the IRS requirements as a minimum. If you're audited the IRS will be checking and missing receipts often means a lost deduction. That means you not only are out the cash, you're out a tax deduction. Who performs the review function depends on a number of factors, but routine reviews are often done by the accounts payable staff. Don't ignore upper management, owners, or relatives. Have something in your employment, partnership, etc. agreement. Touchy area? Get your CPA to review them. In one case an employee who was the son of one of the owners ran up $60,000 in personal travel, entertainment, and purchases
July 22, 2024
The IRS has updated (OK-2024-02) the list of counties granted tax relief related to the severe storms, straight-line winds, tornadoes, and flooding that began on May 19, 2024 in Oklahoma to include Roger Mills and Woods counties. As a result, individual and business taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. The complete list of counties eligible for relief include laine, Caddo, Cluster, Delaware, Jackson, Mayes, Muskogee, Roger Mills, Rogers and Woods.
Tip of the Day
Caution on committing to long-term contract . . . If you're entering into a long-term contract particularly for a new job, make sure you have a good handle on how it will work out. You don't want to agree to supply a item you buy or manufacture at a fixed price if your costs could increase, a part become unavailable, etc. In some cases you may not be able to estimate accurately the potential demand or the costs. There can even be unforseen consequences of accepting the job. One way to handle the situation is to make the contract a one-year term that's renewable, or have an escape clause, or make the price contingent on your suppliers' prices, etc. Talk to your attorney.
July 19, 2024
The IRS has issued final regulations (T.D. 10001) updating the required minimum distribution (RMD) rules. The final regulations reflect changes made by the SECURE Act and the SECURE 2.0 Act impacting retirement plan participants, IRA owners and their beneficiaries. At the same time, Treasury and IRS issued proposed regulations, addressing additional RMD issues under the SECURE 2.0 Act. While certain changes were made in response to comments received on the proposed regulations issued in 2022, the final regulations generally follow those proposed regulations.You may be able to escape all or a portion of the liability on a jointly filed return. But the relief only applies to taxes. In Catherine L. Larosa (163 T.C. No. 2) the IRS made an erroneous refund of interest to the taxpayers. After prevailing in an erroneous refund suit, the IRS attempted to collect the liability. The wife requested innocent spouse relief under Sec. 6015(f), i.e., equitable relief. The IRS denied relief, arguing that a liability arising from an erroneous refund of interest is not eligible for relief under Sec. 6015(f). The wife filed a Petition challenging the IRS's denial of relief. The IRS moved to dismiss for lack of jurisdiction, arguing that an erroneous refund of interest is not eligible for innocent spouse relief. The wife objected. The Court held that in the case of an individual who requests equitable relief under Sec. 6015(f), the filing of a timely petition confers jurisdiction on the Court regardless of the merits of the underlying claim for relief. The Court also held that innocent spouse relief under Sec. 6015(f) is available only for unpaid taxes or deficiencies and an erroneous refund consisting only of interest does not give rise to an unpaid tax or a deficiency and, as a result, the wife is not eligible for relief.
Tip of the Day
Divide and conquer . . . Ever have one of those projects that's so large or overwhelming you simply avoid tackling it? One approach to dealing with the problem is breaking it down into smaller pieces that you can deal with and complete. The completion of part of the project can provide enough satisfaction and confidence to be an incentive to continue on. Breaking down the project may also allow you to get help where that wouldn't be possible otherwise. While this sounds obvious, many times it's not to the person facing the job.
July 18, 2024
In Edward L. Berman and Ellen L. Berman v. Commissioner; Annie Berman (163 T.C. No. 1) on the taxpayer's income tax returns the taxpayers reported that they each were electing under Sec. 1042 to defer recognition of approximately $4 million of gains on their respective sales of stock to an employee stock ownership plan (ESOP) in that year. The stock was sold in exchange for promissory notes under which no payment was made in the year of sale and payments of approximately $450,000 (to each taxpayer) were made the following year. On their respective federal income tax returns, the taxpayers each reported purchasing qualified replacement property (QRP), (see Sec. 1042(c)(4)), in amounts sufficient to defer recognition under Sec. 1042 of the approximately $4 million of gain each realized on the stock sales. However, in the year after the sale the taxpayers each also engaged in purported loan transactions for which their QRP served as purported collateral. The taxpayers now do not dispute that the purported loans constituted sales of their QRP. The IRS issued deficiency notices for the six years. For the first one the notices determined that taxpayers had unreported long-term capital gain of approximately $4 million each, i.e., the entire gains on their original sales of stock that they had reported as deferred for both the first two years, less the $415,000 fee each paid to engage in the purported loan transaction now conceded to have been a sale. On cross-motions for partial summary judgment the first two years the taxpayers argued that they did not make valid Sec. 1042 elections or, if the elections were valid, then because the sales of stock to the ESOP were installment sales, under Sec. 453, they are entitled to report the gains triggered under Sec. 1042(e) by the second year sales of the QRP under the installment method. The IRS sought partial summary judgment to the effect that the taxpayers made valid elections under Sec. 1042 with respect to the gains realized on the stock sales and that, consequently, the timing and amount of the gain recognition must be determined under Sec. 1042(e). The Court held the taxpayers made valid Sec. 1042 elections on their returns for the first year to defer the gains realized on their respective sales of stock to an ESOP in that year. And, because they did not affirmatively elect not to have the income from the installment sales of their stock taken into account under the installment method and also made deferral elections under I Sec. 1042, the gain that must be recognized upon the disposition of their QRP in the second year is determined under the installment method and equals that proportion of the payments received which the taxpayers' gross profits on the sales of their stock bear to the total price to be received for the stock. In addition, the gains that would be recognized under the installment method for the second year are initially deferred pursuant to Sec. 1042(a), requiring corresponding adjustments to the bases of their QRP under Sec. 1042(d) equal to the amounts of the deferred gains further, the sales of their QRP in 2003 cause recapture of the installment sale gains initially deferred under Sec. 1042(a)And because the taxpayers disposed of their QRP in the second year, the gains they must recognize for are determined under the installment method and are equal to that proportion of the payments the taxpayes received in which their gross profit on the sales of their stock bears to the total price to be received for the stock.
Tip of the Day
Safe donating for disaster help . . . Contributing to help disaster victims is a strong urge for many individuals. But it also brings out the scammers and con artists. The Federal Trade Commission has just posted a page How to donate wisely after a disaster with a number of tips on how to avoid the scams. Not mentioned was checking out the charity at the IRS website Tax Exempt Organization Search .
July 17, 2024
The question of whether an advance is debt or equity is an old one in tax cases. That was an important question in Estate of Thomas H. Fry, Deceased, Ruth M. Fry, Personal Representative, and Ruth M. Fry 9T.C. Memo. 2024-8) because the answer would determine whether the taxpayer husband had enough basis in two S corporations to currently deduct the losses. The taxpayer had two S corporations that were highly integrated despite being separate entities. One corporation received substantial cash infusions from the other. The taxpayer, on the corporate books, designated these transfers as loans and, as a result, the taxpayer would have insufficient basis to deduct the losses of the corporation that made distributions to the taxpayer. The IRS asserted the insufficent basis existed. The taxpayer countered that the advances were really capital contributions. Because of the earlier treatment as debt the IRS argued that the taxpayer is now prohibited from recharacterizing the advances citing Section 385(c) which reads "The characterization (as of the time of issuance) by the issuer as to whether an interest in a corporation is stock or indebtedness shall be binding on such issuer and on all holders of such interest (but shall not be binding on the Secretary)." In other words the IRS can recharacterize, but not the taxpayer. The Court found that Section 385(c) has never been applied to S corporations and that regulations under Sec. 385 exclude S corporations from being affected by Sec. 385. The Court also looked at the 11 factors applied to advances to determine if they are debt or equity. The Court found 4 neutral, 6 in favor of equity and 1 in favor of debt. The Court concluded that it was more likely than not the transfers did not constitute true indebtedness.
Tip of the Day
Interst rates . . . Interest rates may be coming down soon. That's what the Federal Reserve has indicated. Probably not as fast as we thought, but at least they've stopped going up. One rate that has begun decreasing is the aplplicable federal rate. This is actually a number of rates the IRS proscribes for loans between related parties, the amount that would be imputed on certain transactions, etc. The drop is small, but it's the first one in some time.
July 16, 2024
The IRS has updated (NM-2024-05) the list of counties granted tax relief related to the South Fork Fire, Salt Fire, and Flooding that begon on June 17, 2024 to include Rio Arriba and San Juan. As a result the complete list of counties where individuals and households that reside in or have a business in includes Lincoln, Otero, Rio Arriba and San Juan counties, and on lands of the Mescalero Apache Tribe. The FEMA declaration permits the IRS to postpone certain deadlines to November 1, 2024. For more information click on the link above.The IRS issued a consumer alert (IR-2024-187) following bad advice circulating on social media about a non-existent "Self Employment Tax Credit" that's misleading taxpayers into filing false claims. Promoters and social media are marketing something they describe as the "Self Employment Tax Credit" as a way for self-employed people and gig workers to get big payments for the COVID-19 pandemic period. Similar to misleading marketing around the Employee Retention Credit, there is inaccurate information suggesting many people qualify for the tax credit and payments of up to $32,000 when they actually do not. In reality, the underlying credit being referred to in social media isn't called the "Self Employment Tax Credit," it's a much more limited and technical credit called Credits for Sick Leave and Family Leave. Many people simply do not qualify for this credit, and the IRS is closely reviewing claims coming in under this provision so people filing claims do so at their own risk. People who were self-employed can claim Credits for Sick and Family Leave only for limited COVID-19 related circumstances in 2020 and 2021; the credit is not available for 2023 tax returns. The IRS is seeing repeated instances where taxpayers are incorrectly using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to incorrectly claim a credit based on income earned as an employee and not as a self-employed individual. More information can be found at the link above.
Tip of the Day
Check your insurance policy . . . Homeowner's insurance policies (and many other types) aren't what they used to be. Just like groceries have been shrinking so has the coverage of homeowner's policies. That may or may not be important to you. Your policy no longer covers trees that fall unless they hit the house and then only coverage of the house repairs. But the biggest tree on your property is only four feet tall and not likely to grow more than a foot. On the other hand, your sister's house is surrounded by 60-70 foot oaks. The same is true of interior contents. In the past the coverage has been generous, but often only for the depreciated value. You may only get pennies on the dollar for your furniture and clothing, but you'll have to replace them at full price. Certain water damage from your plumbing may be covered, some may not. Check your policy now and each time it comes up for renewal. Make sure you're covered for the big ticket items that can get you in deep financial difficulty.
July 15, 2024
If you're going to Tax Court to argue that you didn't receive an IRS deficiency notice, be sure you've got a back up plan. That was one of the arguments the taxpayer made in Saul Bradley (T.C. Memo. 2024-7). The IRS presented a copy of the United States Postal Service (USPS) Form 3877, Firm Mailing Book for Accountable Mail to show proof the deficiency notice was indeed mailed. The settlement officer (SO) verified the notice was mailed to the taxpayer's last known address and the other required documentation. At the CDP hearing the taxpayer requested his debt be placed in currently not collectible (CNC) status. The SO used the financial information provided by the taxpayer to reject the taxpayer's request for CNC status. The Tax Court found the SO did not abuse his discretion by denying relief.
Tip of the Day
Expense report fraud . . . If your employees incur expenses outside the company and you reimburse, there's a good chance one or more of them are padding their expenses. Sometimes it's small or maybe inadvertent (e.g., putting a small personal expense on the company card by accident), but if you've got 5 employees with company cards, there's a good chance at least one of them is taking some serious money out of your business. The first step is to make sure employees produce expense reports on a regular basis, at least monthly. Second, make sure someone is checking them, at least on a random basis. If an employee thinks no one is checking, you're asking for trouble. Third, make sure they turn in receipts to support the expense, with the IRS requirements as a minimum. If you're audited the IRS will be checking and missing receipts often means a lost deduction. That means you not only are out the cash, you're out a tax deduction. Who performs the review function depends on a number of factors, but routine reviews are often done by the accounts payable staff. Don't ignore upper management, owners, or relatives. Have something in your employment, partnership, etc. agreement. Touchy area? Get your CPA to review them. In one case an employee who was the son of one of the owners ran up $60,000 in personal travel, entertainment, and purchases.
July 12, 2024
The IRS has updated the anouncement (IA-2024-08) to include Woodbury County to the list of locales eligible for tax relief for individuals and businesses in Iowa that were affected by severe storms, flooding, straight-line winds, and tornadoes that began on June 16, 2024. These taxpayers now have until Nov.1, 2024, to file various federal individual and business tax returns and make tax payments. The complete list of counties now includes Buena Vista, Cherokee, Clay, Dickinson, Emmet, Lyon, O'Brien, Osceola, Plymouth, Sioux, and Woodbury. Click on the link above for more information.As part of continuing compliance efforts under the Inflation Reduction Act, the IRS announced (IR-2024-185) the agency has surpassed the $1 billion mark in collections from high-wealth taxpayers with past-due taxes. As part of larger efforts taking place, the IRS has stepped up activity specifically on 1,600 individuals whose incomes were more than $1 million per year and who each owed the IRS more than $250,000 in recognized tax debt. Since last fall, this IRS compliance effort has generated more than $1 billion in collections from this group, with work continuing in this area.
Tip of the Day
Commerical properties weak . . . There's no question that commercial real estate is in the doldrums in many parts of the country. Now could be a good time to go shopping but make sure you know the market you're looking to buy in. And don't rely on an appraisal from the seller even if it is independent. Valuations of commercial property are based on how much the property can return in earnings and are based on a number of assumptios. Tweaking those assumptions can make a property appear much more attractive than it really is.
July 11, 2024
The IRS announced (WV-2024-04) tax relief for individuals and businesses in West Virginia that were affected by severe storms, flooding, landslides, and mudslides that began on April 11, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households that reside or have a business in Boone, Brooke, Doddridge, Gilmer, Hancock, Kanawha, Lincoln, Marshall, Ohio, Roane, Tyler, Wetzel and Wood counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after April 11, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period. Click on the link above for more information.In a House Financial Services Committee hearing Treasury Secretary Janet Yellen said there are no plans to extend the filing deadlines of the beneficial ownership information reporting (BOI) requirements. The Secretary indicated that there will be a campaign to inform smaller businesses of the requirements to file.
Tip of the Day
Just paid off a loan? . . . In most cases when borrowing from a lender the creditor will file a UCC form with the state where the loan was made. It shows the debtor and the original amount borrowed. When the loan is paid off that UCC filing should be removed. You should check a few months after the loan is paid off that the filing is indeed removed. Do it when it's easy. It could be very difficult to do some years down the road and it could impact your credit rating .
July 10, 2024
The IRS has updated the annoucement with respect to the tax relief for individuals and businesses in Iowa that were affected by severe storms, flooding, straight-line winds, and tornadoes that began on June 16, 2024 to include Cherokee County. As a result, individuals and households that reside or have a business in Buena Vista, Cherokee, Clay, Dickinson, Emmet, Lyon, O'Brien, Osceola, Plymouth, and Sioux counties qualify for tax relief. Many taxpayers will have until November 1, 2024 to file returns due after June 16, 2024 and before November 1. For more information, go to IA-2024-08.The Treasury Inspector General for Tax Administration (TIGTA) initiated an audit to assess the efficiency and effectiveness of the IRS's oversight of the interagency agreement for storage, management, and retrieval of taxpayer paper files. TIGTA found that the IRS lacks oversight of its agreement with NARA for the storage, management, and retrieval of records at Federal Records Centers. From March 2020 to March 2022, the Federal Records Centers were closed or operated at a limited capacity due to the Coronavirus Disease 2019 Pandemic. The closure of the Federal Records Centers resulted in a significant backlog of the storage and retrieval of paper records. However, the IRS did not monitor or evaluate the performance of the agreement as required. For the full report, go to www.tigta.gov/sites/default/files/reports/2024-07/2024300029fr.pdf.
Tip of the Day
Company profits increasing? . . . Just because the business is doing well doesn't mean an employee (or even an ex-employee) isn't embezzling funds. Employees usually know when the business is doing well and when it isn't. Often there's one or more employees who think they should share in the rewards. And if the company is growing rapidly, you want to make sure you've got controls in place to avoid security lapses often encountered with rapid growth. Overtime work, employees working through their vacations or taking occasional days can be opportunities for embezzlement. Talk to your CPA for suggestions on actions you should take.
July 9, 2024
The IRS has issued an alert about a series of scams and inaccurate social media advice. Social media schemes led to thousands of inflated refund claims during the past tax season. The IRS has increased its compliance efforts related to false and/or questionable credits. These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible. Accordingly, these FAQs may not address any particular taxpayer’s specific facts and circumstances, and they may be updated or modified upon further review. The IRS warns taxpayers not to fall for these scams centered around the Fuel Tax Credit, the Sick and Family Leave Credit, household employment taxes and overstated withholding. The IRS has seen thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims. for the full text of the FAQ, go to FS-2024-24.
Tip of the Day
Condo reserves . . . Smart landlords keep a reserve fund in a checking account, investent account, etc. to cover the cost of repainting the building, a new roof, replacement air conditioner, etc. A rule of thumb some property owners use is to bank the amount of depreciation on the financial statements. Things are more critical for a condo association. You may be able to tough out a summer without air conditioning in your own home but condo members will be up in arms if a building can't provide air conditioning. Same goes for a pool, etc. Condo associations have special assessments with specific purposes such as a new roof, furnace, etc. If finances are properly handled a big surprise charge should be rare. Whether you're on the board or just an owner, make sure there's an adequate reserve fund.
July 8, 2024
The IRS warned taxpayers (IR-2024-182) not to fall victim to a new emerging scam involving buying clean energy tax credits. In this latest scam, the IRS is seeing instances where unscrupulous tax return preparers are misrepresenting the rules for claiming the credits under the Inflation Reduction Act (IRA). The transferability provisions of the IRA enable the purchase of eligible federal income tax credits from investments in clean energy to offset a buyer's tax liability. The IRS has seen taxpayers file returns using unscrupulous return preparers who are claiming purchased clean energy credits that the taxpayer is ultimately unable to benefit from. The scam is generally targeting individuals who file Form 1040. Click on the link above for more information and information on reporting the fraud.The IRS announced (IA-2024-08) tax relief for individuals and businesses in Iowa that were affected by severe storms, flooding, straight-line winds, and tornadoes that began on June 16, 2024. These taxpayers now have until Nov.1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in Buena Vista, Clay, Dickinson, Emmet, Lyon, O'Brien, Osceola, Plymouth, and Sioux counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after June 16, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period. Click on the link above for more information.
Tip of the Day
Don't lie to your insurance company . . . It could prove expensive. The only way your insurer can assess the risk is by disclosing all the information about your property, driving habits, etc. If you withhold information that could affect your premiums or coverage, your insurer could take a number of actions. While it is possible they can assert fraud, that's unlikely except in extreme circumstances. But the other actions could be just as costly. They could deny the claim entirely. For example, you have a second home that you're renting to an unrelated party but claim it's your vacation home. The tenant has an accident and the house catches fire. The claim could be rejected. Failure to disclose underground oil tanks, serious plumbing, electrical or structural issues you were aware of, claiming improvements that haven't been made, registering your car in another state where rates are lower, etc. And just because you or your friend has gotten away with it in the past is no indication you will in the future. Almost all companies are tightening their standards and trying to keep costs and payouts to a minimum.
July 3, 2024
You may soon be able to pay your taxes with a credit or debit card. Reg. 120137-19 contains proposed amendments to regulations regarding the payment of tax by commercially acceptable means. The proposed amendments would reflect changes to the law made by the Taxpayer First Act that would allow the IRS to directly accept payments of tax by credit or debit card, without having to connect taxpayers to third-party payment processors.Legislation provided that, as part of the economic recovery from the pandemic, certain credits including the paid sick leave credit and the paid family leave credit under the Families First Act and the employee retentiion credit under the CARES Act were refundable. Regulations T.D. 9978 deals with the administrative recapture of erroneously refunded COVID-19 credits. Under these regulations, erroneous refunds of COVID-19 credits are treated as underpayments of the taxes imposed under Code Sec. 3111(a) or (b), The proposed regulations (REG-109032-23) would provide that any overpayment interest paid under Code Sec. 6611 to an employer for an erroneous refund of the COVID-19 credits will be treated as an underpayment of the taxes imposed under Code Sec. 3111(a) or (b), as applicable, and so much of the taxes imposed under Code Sec. 3221(a) as are attributable to the rate in effect under Code Sec. 3111(a) or (b), as applicable. The IRS may assess and collect the interest in the same manner as the taxes. These proposed regulations affect businesses, tax-exempt organizations, and certain governmental entities that claim the paid sick leave credit and the paid family leave credit under the Families First Coronavirus Response Act and the American Rescue Plan Act of 2021
Tip of the Day
Employee fraud . . . It happens, more often than you think. In larger companies you can split jobs to make it more difficult, but that's tough in a small business. Your bookkeeper may be handling accounts payable as well as receivable. There are still steps you can take. If there are company credit cards in use, keep the limit on the cards as small as possible. Make sure someone other than the person making out the checks signs them--and that the signer reviews the check and there's documentation to back up the amount. That's certainly not foolproof, but it may prevent checks written to an unknown vendor or multiple checks written to a vendor in one month. You don't need a CPA to open the mail, run a tape on the checks, and make out the deposit ticket. That can be done by almost anyone--other than the accounts receivable clerk. Talk to your accountant. He or she is sure to have a number of suggestions that should be reasonably easy to implement.
July 2, 2024
Penalty or tax? What's the difference? It's money out of your pocket. But for procedural purposes there's a big difference. A number of things we loosely call "penalties" are really taxes, specifically excise taxes. Taxes and penalties fall under different sets of rules as far as the IRS is concerned. In Clair R. Couturier, Jr. (T.C. Memo. 2024-6) the taxpayer made an excess contribution to his IRA the Court noted the Code Section imposing the additional tax (Sec. 4973(a)) specifically calls it a tax and several places and not a penalty. Thus, the IRS need not show supervisory approval of the additional amount as would be required if the additional amount had been a penalty instead of a tax.
Tip of the Day
Don't sweat the small stuff . . . The corollary to that is "do sweat the big stuff". In the case above the taxpayer made an excess contribution of some $25 million to an IRA. The excise tax on an excess contribution is 6% so the tax here is about $1.5 million. But in many cases the excise taxes and penalties can be much larger. Many charitable contributions of property are disallowed by the IRS because the taxpayer didn't provide the required documentation. But the same applies to other areas of business and personal life. You're not going to consult an attorney to buy a car from a dealer, but you shouldn't close on a house without the help of an attorney. The bigger the deal the more important it is to get professional help.
July 1, 2024
The IRS announced (OK-2024-02) tax relief for individuals and businesses in Oklahoma that were affected by severe storms, straight-line winds, tornadoes, and flooding that began on May 19, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in: Blaine, Caddo, Cluster, Delaware, Jackson, Mayes, Muskogee, and Rogers counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 19, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period. For more information, click on the link above.The IRS has issued final regulations (T.D. 10000) requiring custodial brokers to report sales and exchanges of digital assets, including cryptocurrency. These reporting requirements will help taxpayers to file accurate tax returns with respect to digital asset transactions, which are already subject to tax under current law. These final regulations reflect consideration of more than 44,000 public comments received last fall on the proposed regulations. They require brokers to report certain sale and exchange transactions that take place beginning in calendar year 2025 and will be reported on the soon-to-be released Form 1099-DA. The regulations implement reporting requirements by the Infrastructure Investment and Jobs Act, enacted in 2021. The final regulations require reporting by brokers who take possession of the digital assets being sold by their customers. These brokers include operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks, and certain processors of digital asset payments (PDAPs). The majority of digital asset transactions today occur using these brokers. By focusing first on this group, the IRS intends these regulations to cover the greatest number of taxpayers while allowing the IRS and U.S. Treasury Department more time to consider the nuances of transactions involving non-custodial and decentralized brokers. The final regulations do not include reporting requirements for brokers that do not take possession of the digital assets being sold or exchanged. These brokers are commonly called decentralized or non-custodial brokers. The U.S. Treasury Department and the IRS intend to provide rules for these brokers in a different set of final regulations. In addition to the broker reporting rules, the regulations provide rules for taxpayers to determine their basis, gain, and loss from digital asset transactions. The regulations also provide backup withholding rules. The new rules provide for transitional relief (Notice 2024-56) and a delay on information reporting o certain transactions until additional guidance is available (Notice 2024-57).
Tip of the Day
Customer service reps. . . . Looking to move your customer service representative operations overseas or use artificial think twice. You'll definitely alienate some of your customers, how many determine if you save money on the move. If you're set on making the move consider keeping some live domestic service reps for larger or more valuable customers.
June 28, 2024
The IRS announced (IR-2024-176) tax relief for individuals and businesses in Mississippi that were affected by severe storms, straight-line winds, tornadoes and flooding that began on April 8, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments.The IRS is offering relief to any area designated by the FEMA. This means that individuals and households that reside or have a business in Hancock, Hinds, Humphreys, Madison, Neshoba and Scott counties qualify for tax relief. Click on the link above for additional information and more details on the relief.In Belagio Fine Jewelry, Inc. (162 T.C. No. 11) the IRS issued the taxpayer a notice of employment tax determination. Four days before the expiration of the 90-day period to file a petition for redetermination, the taxpayer mailed his petition to the Court via a service that was not a designated private delivery service under Notice 2016-30. The petition arrived at the Court one day after the 90-day deadline. The IRS filed a motion to dismiss for lack of jurisdiction alleging the 90-day period is jurisdictional and the taxpayer's failure to file within that deadline deprives the Court of jurisdiction. The Court held the text, context, and relevant historical treatment of Sec. 7436 do not support finding that the deadline to file a petition for redetermination of employment status is jurisdictional.
Tip of the Day
Love your pet? . . . Don't leave Milly cash or other property in your will. It just won't work. (No matter how smart you think your dog is, she can't write checks.) You'll need a person to provide for her. You can set up a trust to pay for her expenses, but you'll need someone to manage the trust. And while Milly's care costs may be minimal now, you've got to consider what her expenses might be as she ages or gets sick. If you've got a trusted pet lover as a friend leave them the animal and enough funds for their care.
June 27, 2024
The IRS announced (NM-2024-05) tax relief for individuals and businesses in southern New Mexico that were affected by the South Fork Fire, Salt Fire, and Flooding that began on June 17, 2024. These taxpayers now have until Nov.1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households that reside or have a business in Lincoln and Otero counties, and on lands of the Mescalero Apache Tribe qualify for tax relief. Click on the link above for more information.The National Taxpayer Advocate Erin M. Collins today released her statutorily mandated mid-year report to Congress. The report says the tax-return filing season generally ran smoothly this year, but it identifies delays in issuing refunds to identity theft victims, misleading telephone measures that lead to poor resource allocation decisions, and delays in processing Employee Retention Credit claims as key taxpayer challenges. The report also emphasizes the importance of technology upgrades as the IRS seeks to modernize its operations in the coming years. For synopsis of the report see IR-2024-173 and for the full report see National Taxpayer Advocate Annual Report to Congress.
The IRS announced (IR-2024-174) the mailing of a time-limited settlement offer for certain taxpayers who participated in Syndicated Conservation Easements (SCE) and substantially similar transactions that are under audit in the IRS’s Large Business & International and Small Business and Self-Employed divisions. The IRS will notify eligible taxpayers by letter with the applicable terms and timelines to respond. The settlement offer requires substantial concession of the income tax benefits and the application of penalties. Taxpayers under examination who receive a letter but opt not to participate, will continue to face IRS enforcement actions, including potential full disallowance of charitable contributions associated with the SCE and the imposition of all applicable penalties. Taxpayers who don't receive a letter are not eligible for this resolution, and the IRS will continue enforcement-related actions. Taxpayers with cases pending in the United States Tax Court are not eligible for this settlement offer.
Tip of the Day
Real estate is no slam dunk . . . Yes, real estate is generally a safe investment. But that isn't so for all times, all locations, and all properties. Some years ago properties in a good area hit a peak, declined almost 25% and took over 10 years to recover. Even if you bought at the peak and held for 30 years you would have beat the stock market. But what if you needed cash along the way? Real estate can be illiquid and very lumpy. Except by borrowing against the property you can't take out a portion of your investment. And you could invest in a location or property that goes into a decline and doesn't recover. You should also keep in mind that past results don't guarantee future returns.
June 26, 2024
The IRS announced (FL-2024-06) that tax relief for individuals and businesses in Florida that were affected by severe storms, straight-line winds, and tornadoes that began on May 10, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by the Federal Emergency Management Agency (FEMA), individuals and households that reside or have a business in: Baker, Gadsden, Hamilton, Lafayette, Leon, Liberty, Madison, Suwannee, Taylor, and Wakulla counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 10, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period. For more information, click on the link above.T.D. 9999 contains final regulations concerning the statutory disallowance rule enacted by the SECURE 2.0 Act of 2022 to disallow a Federal income tax deduction for a qualified conservation contribution made by a partnership or an S corporation after December 29, 2022, if the amount of the contribution exceeds 2.5 times the sum of each partner’s or S corporation shareholder’s relevant basis. These final regulations provide guidance regarding this statutory disallowance rule, including definitions, appropriate methods to calculate the relevant basis of a partner or an S corporation shareholder, the three statutory exceptions to the statutory disallowance rule, and related reporting requirements. In addition, these final regulations provide reporting requirements for partners and S corporation shareholders that receive a distributive share or pro rata share of any noncash charitable contribution made by a partnership or S corporation, regardless of whether the contribution is a qualified conservation contribution (and regardless of whether the contribution is of real property or other noncash property). These final regulations affect partnerships and S corporations that claim qualified conservation contributions, and partners and S corporation shareholders that receive adistributive share or pro rata share, as applicable, of a noncash charitable contribution.
Tip of the Day
Franchise vs. franchise . . . While a good franchise can be a path to a good living, not all franchises are worth it. Be particularly careful if the entry fee is low. We know of one franchise where the purchase price is only $5,000. But you're not guaranteed a territory. And the franchisor is entitled to far more of your gross receipts than other, similar franchises. While you're saving up front your earnings will be less and, with little or no guaranteed territory, your risk is high. The terms could also make it difficult to sell even if you've built up a substantial following. You're often making a big commitment. On the other hand, some franchises are overpriced. Remember, if you've decided to go the franchise route, you've probably done so because you want support from the franchisor in startng and operating the business. There's a chance you're investing more than what you paid for your house, and the downside in that purchase is generally small. Get good advice before signing.
June 25, 2024
The Treasury Inspector General for Tax Administration (TIGTA) recently performed an audit to determine whether the IRS is meeting the former Secretary of the Treasury’s established goal requiring the IRS to audit a minimum of 8 percent of all highincome individual returns, with incomes more than $10 million, filed each year. The IRS complied with the 2020 Treasury Directive for three tax years but ceased monitoring it at the end of Fiscal Year 2023. At the start of this audit, an IRS executive informed TIGTA in December of 2022that the 2020 Treasury Directive would no longer be followed because these audits were unproductive having high no-change rates. The IRS also stated it was embarking on a different approach focusing on complying with the 2022 Treasury Directive. TIGTA found that many of the examined returns pursuant to the 2020 Treasury Directive were productive depending on which IRS function conducted the examinations and which case selection methods were used. The Small Business/Self Employed Division’s closed examinations of individual taxpayer returns with income of $10 million or more, in Tax Years 2016 through 2021, were generally more productive than income ranges below $10 million, yielding four times more dollars assessed per return and two times more dollars assessed per hour when compared to examinations of returns with income of $400,000 to under $10 million. To see the complete report, go to www.tigta.gov/sites/default/files/reports/2024-06/2024300028fr.pdf
Tip of the Day
Do you know what you're investing in? . . . Exotic inbvestments have always been around, but they seem to be getting further from mainstream investments than ever. Talk to your investment advisor and if the investment can't be explained to you so you understand it, maybe it's best to pass on the deal. And never put all your funds in one type of investment.
June 24, 2024
Before going to Court make sure you know the rules. In William M. Hefley and Aimee J. Hefley (T.C. Memo. 2024-4) the IRS claimed the taxpayers had unreported income and disallowed deductions on their Schedule C. But in Court the taxpayers did not address these issues and the Court deemed them to be abandoned by the taxpayers. With respect to certain itemized deductions the taxpayers provided no testimony. Furthermore the taxpayers refused to stipulate to evidence they submitted and that evidence was disregarded.
Tip of the Day
Don't touch that IRA . . . Or 401(k). Or whatever vehicle you use for retirement savings. Taping into those plans is one of the sureest ways of ending up short when you retire. First you'll get hit with a 10% penalty tax if you're under age 59-1/2 and second you'll pay income taxes on the funds. But it can be worse. Often the amount is substantial and that means you could be pushing yourself into a higher bracket. Finally, you'll be missing out on the earnings or capital accumulation of a significant amount of money. But the most important reason for not taping the account is after you've done it once, you're more likely to do it again.
June 21, 2024
Notice 2024-55 provides guidance on exceptions to the additional tax (penalty) when taking early permissible retirement plan distributions for emergency personal expenses and for victims of domestic abuse. This was added by the SECURE 2.0 Act of 2022, and the provisions became effective on January 1, 2024. The notice provides that a taxpayer is permitted to receive a distribution from an applicable eligible retirement plan to meet unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. The notice:
The Notice also provides guidance on the requirements tht victims of domestic abuse must meet to qualify for the exception to the penalty. Keep in mind that the distributions are still includible in gross income, but not subject to the 10% penalty.
Tip of the Day
Be careful of the thin ice . . . Before a pond is fully frozen the thinest ice is usually near the edges. That can be true in the case of taxes. When you wander too close to the edge of the law you're often asking for trouble. Your friend, a person recommending an action, or even a tax professional may suggest an approach that's not prohibited in the regulations or other tax guidance, but is definitely stretching the limits. For example, your company's pension or benefit plan is meets the nondiscrimination requirements currently, but is at the edge of the test. The rules change because of a law change or a shift in employee makeup. The result could be that the entire plan is disqualified. In the case of valuations of a charitable contribution, you could face enhanced penalties. Get good advice from a unbiased professional.
June 20, 2024
T.D. 9998 sets forth final regulations regarding the increased credit amounts or the increased deduction amount available for taxpayers satisfying prevailing wage and registered apprenticeship (collectively, PWA) requirements established by the Inflation Reduction Act of 2022. These final regulations affect taxpayers intending to satisfy the PWA requirements to be eligible for increased amounts of Federal income tax credits or an increased deduction, including those intending to make elective payment elections for available credit amounts, and those intending to transfer increased credit amounts. These final regulations also affect taxpayers intending to satisfy the prevailing wage requirements to be eligible for increased amounts of those Federal income tax credits that do not have associated apprenticeship requirements. Additionally, these final regulations affect taxpayers who initially fail to satisfy the PWA requirements (or prevailing wage requirements, as applicable) and subsequently comply with the correction and penalty procedures in order to be deemed to satisfy the PWA requirements (or prevailing wage requirements, as applicable). Finally, these final regulations address specific PWA and prevailing wage recordkeeping and reporting requirements. See also IR-2024-168 for an IRS simpler explanation. You can find addtional information on the prevailing wage and apprenticeship requirements in IRS Publications 5983 and 5855.
Tip of the Day
Attorney-client privilege . . . Don't believe what you see on TV or in the movies. Attorney-client privilege is fragile and limited. The attorney-client privilege protects communications between a client and his attorney related to the purpose of securing legal advice. The privilege not only covers the substance of the client's communication, but also extends to the attorney's advice in response. Documents prepared in anticipation of litigation are not discoverable. But once you reveal information in privileged communication to a third party, you've waived attorney-client privilege. In one recent case the memoranda that was prepared in anticipation of litigation was passed to another law firm to be used in preparing a report that had nothing to do with the anticipated litigation. A court held that the act waived attorney-client privilege. This is a complex area you should consult an attorney before revealing any communication between you and your attorney that you may want a third party to get.
June 19, 2024
Notice 2024-54 announces that the IRS intends to publish two sets of forthcoming proposed regulations that would address certain basis-shifting transactions involving partnerships and related parties. These transactions, referred to as "covered transactions" in this notice, (1) involve partners in a partnership and their related parties, (2) result in increases to the basis of property under Secs. 732, 734(b), or 743(b) of the Code, and (3) generate increased cost recovery allowances or reduced gain (or increased loss) upon the sale or other disposition of the basis-adjusted property. First, the IRS intends to propose regulations under Secs. 732, 734(b), 743(b) and 755 (forthcoming Proposed Related-Party Basis Adjustment Regulations) that would (1) provide the required method of recovering adjustments to the bases of property held by a partnership, property distributed by a partnership, or both, arising from the covered transactions described in this notice, (2) provide rules governing the determination of gain or loss on the disposition of such basis-adjusted property, and (3) include similar transactions involving tax-indifferent parties (for example, certain foreign persons, a tax-exempt organization, or a party with tax attributes that make it tax-indifferent) rather than related parties. Second, the IRS intends to propose regulations under Sec. 1502 (forthcoming Proposed Consolidated Return Regulations) to clearly reflect the taxable income and tax liability of a consolidated group (as defined in Reg. Sec. 1.1502-1(h)) whose members own interests in a partnership. More specifically, the IRS anticipates that the forthcoming Proposed Consolidated Return Regulations would provide for single-entity treatment of members that are partners in a partnership, so that covered transactions cannot shift basis among group members and distort group income. See also IR-2024-166, Rev. Rul. 2024-14 and IRS Fact Sheet FS-2024-21.
Tip of the Day
Pension plan filing . . . If you've got a pension plan, including a 401(k), and more than yourself as an employee you probably use an outside service to administer the plan and file the 5500. If you're the only employee you'll be required to file an annual return on Form 5500-EZ. You may be able to do that yourself or your accountant may do it for you. It can be filed electronically with the Department of Labor using their EFAST2 system or on paper with the IRS. The due date is July 31 and there are penalties for failure to file. You can request an extension using Form 5558.
June 18, 2024
The IRS has updated (AR-2024-01) the tax relief for individuals and businesses in Arkansas that were affected by severe storms, straight-line winds, tornadoes, and flooding that occurred on May 24, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. The counties covered by the relief now includes Baxter, Benton, Boone, Carroll, Fulton, Greene, Madison, Marion, Nevada, Randolph, and Sharp. Click the link above for more information.The IRS has issued frequently asked questions (FAQs) in FS-2024-22 related to educational assistance programs. Taxpayers may exclude certain educational assistance benefits from their gross income if they are provided under an educational assistance program. Educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies and equipment. They also include principal or interest payments on qualified education loans made by the employer after March 27, 2020, and before Jan. 1, 2026 (unless extended by future legislation). Taxpayers do not have to pay tax on the amount of benefits up to $5,250 per calendar year and their employer should not include the benefits in their wages, tips and other compensation shown in box 1 of their Form W-2. However, it also means that any tax-free education expenses can’t be used as the basis for any other deduction or credit, including the lifetime learning credit.
Tip of the Day
Doing some capital improvements on your home? . . . Don't forget to tell your insurance company when you're done. Many improvements are costly and add significantly to the value of your home. You don't want to be underinsured after going through that cost and work. You should also talk to your insurance company if you've added or changed items that could make your house safer such as filling in a pool. You may also have to inform the local tax assessor. (That's usually automatic if you need a building permit from the town for the improvements.) It'd be nice to get away without paying tax on the improvement, but some localities have penalties for failing to report additions. But getting rid of an improvement can save taxes--tearing down an old barn or garage, removing a deck, etc. That could also reduce your insurance premiums.
June 17, 2024
The IRS has updated (OK-2024-01) several times the area covered by tax relief for individuals and businesses in Oklahoma that were affected by severe storms, straight-line winds, tornadoes, and flooding that began on April 25, 2024. These taxpayers now have until September 3, 2024, to file various federal individual and business tax returns and make tax payments. The counties covered now include Carter, Coal, Cotton, Craig, Haskell, Hughes, Johnston, Kay, Lincoln, Love, McClain, Murray, Nowata, Okfuskee, Okmulgee, Osage, Ottawa, Pittsburg, Pontotoc, Pottawatomie, Seminole, Tillman, Wagoner, Washington, and Washita.The IRS has issued corrections to Treasury Decision 9945 that was published in the Federal Register on Tuesday, January 19, 2021. Treasury Decision 9945 issued final regulations that recharacterize certain net long-term capital gains of a partner that holds one or more applicable partnership interests as short-term capital gains. The changes correct a number of drafting errors.
Tip of the Day
Phantom debt collectors . . . The Federal Trade Commission (FTC) is warning individuals that in a recent case debt "collectors" used a variety of names to make people think they were dealing with a law firm. The impostors told people they were delinquent on a payday loan or other debt and threatened them with arrest, jail time, or getting sued unless they paid by credit or debit card over the phone. Complaints about debt collectors account for nearly one-third of consumer complaints to the FTC. The FTC suggests that before paying anything ask the collectors to prove the debt by sending you a "validation notice". If they don't that's a warning sign they may not be legitimate. For more information go to www.ftc.gov.
June 14, 2024
Notice 2024-47 extends the relief provided in Notice 2024-33, which waived the estimated tax penalty imposed under Sec. 6655 (for a corporation's failure to pay estimated income tax) to the extent attributable to the revised corporate alternative minimum tax (CAMT) under Sec. 55, but only with respect to an installment of estimated tax due on April 15, 2024, or May 15, 2024, with respect to a taxable year that began in 2024. The relief from the addition to tax under Sec. 6655 provided by Notice 2024-33 is extended to any installment of estimated tax by a corporate taxpayer with respect to a taxable year that began in 2024 that is due on or before August 15, 2024, to the extent attributable to the CAMT.The IRS has updated several tims the areas in Texas the qualify for tax relief for individuals and businesses affected by severe storms, straight-line winds, tornadoes and flooding that began on April 26, 2024. The complete list of areas affected now includes Austin, Bell, Bosque, Brown, Caldwell, Calhoun, Clay, Coleman, Collin, Concho, Cooke, Coryell, Dallas, Denton, Eastland, Ellis, Falls, Freestone, Grimes, Guadalupe, Hamilton, Hardin, Harris, Henderson, Hockley, Houston, Jasper, Jones, Kaufman, Lamar, Lampasas, Lee, Leon, Liberty, Limestone, Madison, Mills, Montague, Montgomery, Navarro, Newton, Polk, Smith, San Jacinto, San Saba, Smith, Terrell, Trinity, Tyler, Van Zandt, Walker, Waller, and Washington counties. For the relief available go to TX-2024-11.
Tip of the Day
Check out your partners' finances . . . If you're going into a partnership (or taking in stockholders in a corporation) you want to make sure your partners are financially able to handle the load. You may each start out putting in $20,000, but if things don't go as planned can they come up with any additional cash needed? And if you have to go for a loan, will their credit rating help or hurt your chances of approval? You don't want to share disproportionately in the risk.
June 13, 2024
The IRS announced (AR-2024-01) tax relief for individuals and businesses in Arkansas that were affected by severe storms, straight-line winds, tornadoes, and flooding that occurred on May 24, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in Baxter, Benton, Boone and Marion counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 24, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period. The Nov. 1, 2024, deadline also applies to any payment normally due during this period, including the quarterly estimated tax payments due on June 17, 2024, and Sept. 16, 2024, and the quarterly payroll and excise tax returns normally due on July 31, 2024, and Oct. 31, 2024. In addition, penalties on payroll and excise tax deposits due on or after May 24, 2024, and before June 10, 2024, will be abated as long as the tax deposits are made by June 10, 2024. Click on the link above for more information.As part of continuing efforts to protect the senior community, the IRS issued a warning (IR-2024-164) about the rising threat of impersonation scams. These scams are targeting older adults by pretending to be government officials, aiming to steal sensitive personal information and money. By posing as representatives from agencies such as the IRS, or other government agencies, these fraudsters use fear and deceit to exploit their victims. scammers deploy advanced techniques to fabricate a veneer of credibility, including the manipulation of caller IDs to appear legitimate. Here are just a few examples of their schemes:
Click on the link above for more information and links to additional resources.
Tip of the Day
Don't sweat the small stuff . . . Once a couple was pround to tell me they saved 10 cents a gallon on gas. I didn't have the heart to tell them they spent about $4.00 for the cost of running the car to save $1.60. That can be true in many situations. And even if you come out ahesad, what's your time worth.
June 12, 2024
The IRS launched the following new Business Transcript Delivery System (TDS) transcripts:
Some users have reported technical difficulties while attempting to access these transcripts. The IRS is actively working to identify and resolve technical issues. In the interim, users may intermittently receive a technical difficulties message when requesting one of these transcripts and should try again later. We appreciate your patience and apologize for any inconvenience.
When a tax adjustment is made on a business or individual taxpayer's tax account, the IRS office that makes the adjustment is required to send all documentation supporting the adjustment to one of its Tax Processing Centers located in Austin, Texas; Kansas City, Missouri; or Ogden, Utah. When the adjustment is made, a Form 5147, Integrated Data Retrieval System Transactions Record, is printed at the Tax Processing Center and paired with the source documents supporting the tax adjustment transaction. In a study the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS faces challenges in its ability to eliminate the backlog of adjustment source documents to be associated with a corresponding Form 5147. As of November 2023, the IRS reports having over 2.6 million source documents that need to be associated with the corresponding Form 5147. TIGTA also found that the IRS has not developed a comprehensive strategy that outlines actions the IRS plans to take, the resources needed, and the time frame to resolve this backlog. To read the report go to www.tigta.gov/sites/default/files/reports/2024-06/2024ier013fr.pdf.
Tip of the Day
Software isn't the key . . . People who want to keep a personal budget ask what software is best. Almost any program will work. You can use a spreadsheet program or even pencil and paper. The trick is to use the program diligently. Most of the time budgets don't work because people don't stick to them. It doesn't take more than a little cheating to get off the path. The same is true for saving for retirement. "We'll skip the IRA deposit this month because of my parents' anniversary party." One deviation will lead to anoher.
June 11, 2024
Each type of entity--partnership or LLC, S corporation, C corporation or sole proprietorship has its particular benefits and drawbacks. On of the drawbacks of a C (regular) corporation is that the salary of shareholders can be challenged as excessive because the IRS thinks the corporation is paying too high a salary to avoid paying dividends. That was one of the issues in William E. Frazier and Mary A. Frazier, et al (T.C. Memo. 2024-3). The taxpayers were able to substantiate the salaries paid. A second theory on this issue proposed by the IRS was rejected by the Tax Court as being untimely because it was first brought up on brief. The Court noted a party can rely on a legal theory only if it has provided the opposing party with fair warning of the theory so that the opposing party is not surprised and prejudiced in its ability to prepare its case.
Tip of the Day
Second quarter estimates . . . Normally due the 15th of June you get an extra two days this year since the 15th is a Saturday, they're due Monday. THe simplest way to calculate the amount due is make sure your total estimated taxes for the year equal 100% of last year's liability (110% if your adjusted gross income is over $150,000. But if your liability fo 2024 is going to be less than last year, you might want to base your estimates on this year's income. Talk to your accountant for advice.
June 10, 2024
The IRS announced (KY-2024-02) tax relief for individuals and businesses in Kentucky that were affected by severe storms, straight-line winds, tornadoes, landslides, and mudslides that began on April 2, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union, and Whitley counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after April 2, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period. Click on the link above for more information.The IRS has published (WV-2024-03) tax relief for individuals and businesses in West Virginia that were affected by severe storms, straight-line winds, tornadoes, flooding, landslides, and mudslides that began on April 2, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in Boone, Brooke, Cabell, Fayette, Hancock, Kanawha, Lincoln, Marshall, Nicholas, Ohio, Preston, Putnam, Tyler, Wayne and Wetzel counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after April 2, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period. Click on the link above for more information.
Tip of the Day
Drop house insurance? . . . That's what some homeowners are considering in certail locales wehere rates have skyrocketed. But generally that's a very poor option. For one thing your lender is almost sure to require you to carry insurance. Second, with the price of housing so high could you afford to rebuild, evem with government assistance? There are some cases where insurance should be dropped. We've heard of quotes of $15,000 a year for a mobile home worth $25,000 in a high-risk area. That could also be true for an older home with significant defects in a high-risk area. But even in these cases you may need some sort of coverage for liability. While situations differ widely, you should consult an independent agent. He can shop your situation and may be able to come up with a policy from another company at acceptable rates. That's because in some cases insurance companies want to lower their risk in certain areas. Then try to determine the negative factors affecting your property. That could be an underground oil tank, a roof in poor condition, structural or mechanical issues, etc.
June 7, 2024
The IRS announced today tax relief for individuals and businesses in Iowa that were affected by severe storms, tornadoes, and flooding that occurred on May 20, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in Adair, Montgomery, Polk, and Story counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 20, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period. The Nov. 1, 2024, deadline also applies to any payment normally due during this period, including the quarterly estimated tax payments due on June 17, 2024, and Sept. 16, 2024, and the quarterly payroll and excise tax returns normally due on July 31, 2024, and Oct. 31, 2024. In addition, penalties on payroll and excise tax deposits due on or after May 20, 2024, and before June 4, 2024, will be abated as long as the tax deposits were made by June 4, 2024. Click on the link above for more information.The IRS is reminding (Tax Tip 2024-56) eligible contractors who build new energy efficient homes or substantially reconstruct existing homes into qualified energy efficient homes may be eligible for a tax credit up to $5,000 per home. The exact amount of the credit depends on eligibility requirements such as the type of home, the home's energy efficiency and the date when someone buys or leases the home. To claim the credit the contractors must (1) construct or substantially reconstruct and rehabilitate a qualified home, (2) own the home and have a basis in it during construction, (3) sell or rent it to a person for use as a residence. Click on the link above for more information and links to other resources.
Tip of the Day
Bankruptcy is rarely quick . . . The pandemic precipitated a number of business failures. That's not surprising considering all the circumstances. Shutting operations, even for a couple of weeks, is likely to be fatal for many businesses. But in more normal circumstances most failures are the culmination of poor management, the owners taking too much out of the business, etc. Many cases are the result of failure to adjust to slower growth or dwindling sales, the failure or inability to adjust prices to cover costs, inability to achieve a breakeven sales volume, etc. Monitoring sales and costs is the best approach to spotting problems, but you should have a "feel" for what's happening. If you're not close enough to the action, your employees can give you input. Salesmen hear things like "no I went with your competitor because of pricing or service", people aren't as busy as last year at this time, etc. Don't wait until it's too late.
June 6, 2024
The IRS announced (IR-2024-156) that in many cases payments received by individuals affected by last year's train derailment in East Palestine, Ohio, are not taxable. In Notice 2024-46>, the IRS determined that the Feb. 3, 2023, derailment qualifies as "an event of a catastrophic nature." As a result, various payments made to affected individuals by the common carrier that operated the derailed train are "qualified disaster relief payments," which, by law, are excluded from gross income. Individual taxpayers qualify for the exclusion only if the expenses covered by the qualified disaster relief payments made by the common carrier are not otherwise paid for by insurance or other reimbursement. The common carrier issued Forms 1099-MISC to recipients of various payments, some of which are taxable and some of which are not:Tax-free qualified disaster relief payments made by the common carrier are:
Taxable payments include:
The IRS announced (IR-2024-155) reaching another key milestone in the agency's transformation work with the Document Upload Tool accepting its one millionth taxpayer submission. Use of the Document Upload Tool, sometimes referred to as DUT, continues to grow. During the first six months of this fiscal year, more than 265,000 taxpayers used the tool, and the number continues to grow each month. The Document Upload Tool has shown steady growth over time as well. Since 2022, average monthly use of the DUT has more than doubled every year, from around 16,000 in 2022, to around 37,000 in 2023 and finally almost 84,000 so far in 2024. The document submissions cover a wide range of tax issues, including responding to IRS Notice CP2000, where the agency notifies taxpayers of potentially underreported income. To learn more about the Document Upload Tool, visit IRS.gov/dut
Tip of the Day
Bankruptcy clawbacks . . . What luck. You dodged a bullet. Madison Inc. paid you the $20,000 it owed you just a month before it filed for bankruptcy. Hold on. Don't spend that money quite yet. Amounts paid within 90 days of a bankruptcy filing can be preference payments and the bankruptcy trustee can recover them from the recipient. The claims can be filed as long as two years after the bankruptcy. Small companies can be particularly vulnerable to a "clawback" because it may not be worth an attorney and related costs to fight it. While this has been in the law for some time, it's just recently that attorneys have been asserting such claims. Are you at risk? First, not all bankrupt companies file such claims. Second, if your customer is reorganizing and will be back in the same business you might avoid a clawback. The customer may not want to risk losing you as a supplier.
June 5, 2024
In dealing with the IRS a consent order may not be the same thing as a final determination. Some special rules apply in the case of bankruptcy where the IRS is a creditor. In Charles K. Breland, Jr. (U.S. Court of Appeals, Eleventh Circuit) the taxpayer filed for Chapter 11 bankuptcy. The IRS filed a proof of claim for an amount in excess of $2 million. The proof of claim was amended several times until at one poin it exceeded $6 million. The taxpayer subsequently filed a Chapter 11 Plan of Reorganization, which the IRS objected to "based in part on the ground that the plan did not provide for payment of the entire amount of taxes" the IRS claimed the taxpayer owed. To resolve the objection the IRS and the taxpayer entered into a consent order, in which the IRS withdrew withdrew one claim and reinstated another, and the Chapter 11 Plan was confirmed. The Consent Order stated that the IRS's right to assess taxes would be reinstated upon default by the taxpayer. "Upon any default under the Plan relating to the nonpayment of any Administrative Expense, Priority Tax Claims or Unsecured Claim, the administrative collection powers and rights of the United States shall be reinstated as they existed prior to the filing of the bankruptcy petition, including, but not limited to, the assessment of taxes, the filing of Notice of Federal Tax Lien and the powers of levy, seizure, and sale under Title 26 of the United States Code." The Court held that there was no indication that the consent order was intended to apply to the IRS's ability to assess taxes not contemplated by the plan, or that the IRS forfeited its right to collect additional unpaid income taxes from the relevant years that it discovered after the plan was confirmed. The Tax Court held the IRS was not barred by res judicata or collateral estoppel from filing additional notices of deficiency.
Tip of the Day
Looking for a loan? . . . Start your search early. Many individuals and businesses are finding it more difficult depending on your type of loan and the collateral. Many bankers are worried about the condition of loans made on commercial properties, others are worried about the quality of consumer debt such as car loans. The lender might be looking for better collateral and/or better financials on the borrower. Don't wait till you have to purchase the item or refinance a debt. If you're a business, the lender may question your business acumen if you're desparate for the loan.
June 4, 2024
Without good records the IRS can even deny a deduction for cost of goods sold. In David Villa and Juana M. Villa (T.C. Memo. 2023-155) the taxpayers were in the business of fence building. They did subcontracting for a company that supplied the materials and the taxpayers supplied the labor, provided the tools, etc. They also received income from work they did directly for customers. They reported the income from the subcontracting work, but not from the work they did for their own customers. The taxpayers conceeded the income issue before trial. But the taxpayers took money from the gross receipts for personal expenses and for other expenses including cost of goods sold. Unfortunately the taxpayers kept no records that would showed how much the allocation between the two. The taxpayers asked the Court to use the results from one representative job to calculate the cost of goods sold. The Court noted that because for the subcontracting work the materials were supplied, that could not be used without modification. The Court eventually allowed 50% of the cash withdrawn. The Court also sustained the accuracy-related penalty.The IRS issued Tax Tip 2024-49 covering some signs of an incorrect Employee Retention Credit claim and how to resolve issues. The tip highlights some common ways ERC claims are incorrect:
Tip of the Day
Talk to your parents . . . Elderly individuals are the most vulnerable to scams and the internet provides them in droves. Talk to your parents about the most common ones and ones they might be more at risk for. For example, a lonely widower might be easy prey for an younger woman scam. If they won't listen to you enlist your children to help them with the internet and smart phone. They might also listen to a neighbor or friend whose younger and more savvy but still in their general age group. See if they'll agree to put a limit on their bank account debit or credit card. Many utility companies and banks will provide third party notification of unpaid bills or unusual account activity.
June 3, 2024
The IRS has announced (IR-2024-154) tax relief for individuals and businesses in parts of Massachusetts affected by severe storms and flooding that began on Sept. 11, 2023. These taxpayers now have until July 31, 2024, to file various federal individual and business tax returns and make payments. The IRS is offering relief to any area designated by FEMA. Currently, individuals and households that reside or have a business in Bristol and Worcester counties qualify for tax relief. The same relief will be available to any other counties added later to the disaster area. Click on the link above for more information.The IRS has updated Fact Sheet 2024-10 that addresses frequently asked questions about SECURE 2.0 Act of 2022 (SECURE 2.0) that provides for special rules for distributions from retirement plans and individual retirement arrangements (IRAs) and for retirement plan loans, for certain individuals impacted by federally declared major disasters.
Tip of the Day
Looking for a better deal? . . . Many more shops and sellers than you think will cut the price if you haggle but you've got to do your homework. First, you should have done a little research. You're not going to get a carpenter who's installing a window to cut his price by 30%, but you may get that salesman that's going door to door or the one who accosted you at the big box store to do so. Why? He's working on a higher margin and can afford to cut the price. Of course it might make more sense just to go with another supplier. And some set a high price expecting to get an argument so they can drop the price and still make money. One customer was offered an extended car wearranty at the dealership for $1,500. He didn't accept. Two weeks later they offered again for $1,000. It can be done, but you should know ahead of time what you're up against.
Copyright 2023-2024 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