Small Business Taxes & ManagementTM--Copyright 2018, 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:
For Letter Rulings and Technical Advice Memoranda:
IRS Written Determinations
For IRS Forms and Publications:
Forms and Publications
May 22, 2019
NewsRevenue Procedure 2019-26 (IRB 2019-24) provides: (1) tables of limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2019; and (2) a table of amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2019. The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by Sec. 280F(d)(7). For purposes of this revenue procedure, the term “passenger automobiles” includes trucks and vans.
The IRS has released the 2018 IRS Data Book, a snapshot of agency activities for the fiscal year. The 2018 IRS Data Book describes activities conducted by the IRS from Oct. 1, 2017, to Sept. 30, 2018, and includes information about tax returns, refunds, examinations and appeals. The annual publication is illustrated with charts showing changes in IRS enforcement activities, taxpayer assistance levels, tax-exempt activities, legal support workload and IRS budget and workforce levels when compared to fiscal year 2017 and prior years. Included this year is a section on taxpayer attitudes from a long-running opinion survey.
Tip of the DayIRS corrects error on Schedule D worksheet . . . In what must be an embarrassment to the IRS it discovered and corrected (on May 15) an error on the worksheet on the instructions to Form 1040, Schedule D used to calculate gain at the 28 percent rate (on sales of collectibles) and gain taxed at the 25 percent rate (unrecaptured Section 1250 gain). Tax software companies would have used the worksheet in writing their programs as well as taxpayers who prepare a return by hand. If you had either one of these situations, you may have overpaid your taxes. You should download the updated Schedule D instructions or any software updates and recalculate your taxes. An amended return might be in order.
May 21, 2019
NewsIn DAF Charters, LLC (152 T.C. No. 14) the petitioner was a Florida limited liability company that is wholly owned by a Cayman Islands corporation. As such and not electing otherwise, it is disregarded as an entity separate from its owner for most Federal tax purposes. However, it is not disregarded as an entity separate from its owner and instead is treated as a corporation for Federal employment tax purposes. During the taxable period ending Dec. 31, 2012, the petitioner operated a charter yacht, registered in the Cayman Islands, that traveled in and out of the United States and its territorial waters, and P employed U.S. citizens as crewmen for the yacht. The petitioner filed a timely employment tax return for the period but did not pay employment taxes on the wages it paid to those employees, claiming that those wages were exempt from employment taxes under the “crewmen’s exemption” of Sec. 3121(b)(4) because the petitioner was not an “American employer” under Sec. 3121(h). The definition of an “American employer”, however, includes “a corporation organized under the laws of the United States or of any State.” The IRS assessed the applicable amount of employment taxes and notified the petitioner that the Service intended to levy to collect the outstanding liability. In response the petitioner requested and received a collection due process hearing, following which the IRS upheld the proposed levy. The Tax Court held that because the petitioner is treated as a corporation for employment tax purposes, Reg. Sec. 301.7701-2(c)(2)(iv)(B), and was organized under the laws of a State, the petitioner was an American employer under Sec. 3121(h) and thus was not entitled to the crewmen’s exemption of Sec. 3121(b)(4). Hence, the petitioner was liable for employment taxes on wages paid during the taxable period ending Dec. 31, 2012, and the IRS may proceed with the proposed collection.
The IRS is amending regulations that impose user fees for enrolled agents and enrolled retirement plan agents. Final regulations submitted to the Federal Register remove the initial enrollment user fee for enrolled retirement plan agents because the IRS no longer offers initial enrollment as an enrolled retirement plan agent. The final regulations also increase the amount of the renewal user fee for enrolled retirement plan agents from $30 to $67. Additionally, the final regulations increase the amount of both the enrollment and renewal user fee for enrolled agents from $30 to $67.
Tip of the DayEconomic downturn ahead? . . . Maybe. We've come a long way since the economic crisis in 2008. While anything's possible--a confluence of a prolonged trade war with China, new trouble in the mideast, etc.--that could trigger another major recession, that seems far less likely in the near future. The banks and the real estate markets are far less vulnerable than in the past, and the economic recovery has been measured, not heated. The recent bigger gains appear to be largely the result of the new administration and the tax cuts. The likely scenario is that growth will moderate and may even come close to drying up, but a real downturn seems unlikely. The best way for many businesses to handle the current environment is to be optimistic, but keep a careful watch for changes.
May 20, 2019
NewsThe IRS has announced it will conduct maintenance on the e-Services and e-File systems over the upcoming Memorial Day weekend. The e-Services’ Transcript Delivery System, TIN Matching, ACA and e-file Application will not be available during this time. The Modernized e-File Systems (MeF) will also be unavailable. Users should refrain from accessing the MeF Systems to transmit business, individual or state tax returns, retrieve acknowledgements or submit any other service requests. Monitor the MeF Status Page for updates. Systems will be unavailable from midnight ET on Friday, May 24, through 7 a.m. ET on Tuesday, May 28.
Victims of the severe storms and flooding that took place on March 12, 2019 in Iowa may qualify for tax relief from the IRS. The IRS has now added Scott to the list of counties affected by the storms. Thus, now individuals who reside or have a business in Fremont, Harrison, Louisa, Mills, Monona, Pottawattamie, Scott, Shelby, and Woodbury counties may qualify for tax relief. For more information go to IRS announces tax relief for Iowa victims of severe storms and flooding .
Tip of the DayCollectibles as investments? . . . Sounds like an easy way to amass a fortune. Buy artwork, autographs, rare books, a classic car, or any number of other collectibles. But the approach isn't as foolproof as you might think. First, not every collectible goes up consistently; sometimes they move in cycles; sometimes they never recover. 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, condition, and public 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. If you're in a rush and sell to a dealer, you'll get much less than a sale to a private party. 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 sure road to retirement, you're on the wrong street.
May 17, 2019
NewsTimely issuance of published guidance to taxpayers and tax preparers is critical so they have the information needed to file accurate tax returns. Our overall objective was to determine the status of the Chief Counsel’s efforts to develop and issue published guidance related to the TCJA. The Treasury Inspector General for Tax Administration (TIGTA) performed an audit to determine the status of the Chief Counsel’s efforts to develop and issue published guidance related to the TCJA. TIGTA found the Chief Counsel began working on the TCJA shortly after it was enacted and has made significant progress in identifying, creating, and issuing the published guidance needed to educate the public about the impact the TCJA will have on its tax obligations. In collaboration with the Department of the Treasury, Chief Counsel determined that 72 (61 percent) of the 119 TCJA provisions administered by the IRS would need published guidance (some requiring multiple guidance products). To help manage the published guidance process, Chief Counsel developed processes to track the status of published guidance products for each provision and assigned attorneys in the Associate Chief Counsel offices to develop the required TCJA guidance. In addition, the IRS identified the highest priority provisions in the TCJA. As of the beginning of the 2019 Filing Season, Chief Counsel had issued 79 published TCJA guidance products. Further, Chief Counsel issued four additional guidance products before the end of March 2019. However, much work remains to issue complete guidance for the TCJA. Chief Counsel plans to issue more than 90 published guidance products after March 29, 2019. Several factors affect Chief Counsel’s efforts to issue published guidance, e.g., the volume and scope of the TCJA provisions, the review and approval process, and hiring constraints. In addition, most provisions of the tax law went into effect on January 1, 2018, resulting in an immediate demand for guidance. Finally, Chief Counsel will need to review and consider a substantial amount of public comments it has received on guidance issued to date as well as guidance it will issue in the future. TIGTA will continue to monitor the IRS’s progress in issuing published TCJA guidance. TIGTA made no recommendations. However, key IRS officials reviewed the report and agreed with the facts and conclusions presented. To see the complete report, go to www.treasury.gov/tigta/auditreports/2019reports/201914025fr.pdf.
Tip of the DayBest business to start? . . . One you understand and enjoy. If you don't understand the business your chances of success are reduced, you'll spend more time at it, and your profits may be smaller than one you're familiar with. And, if you don't enjoy your work, the only thing you'll get out of the business is money. And most startups and small businesses require an extraordinary investment of time. As always, there are exceptions to the rules, some people have succeeded at businesses they don't understand and, conversely, no amount of understanding will make up for a business model that may be doomed from the start. But investing in a business you understand is a smart first step.
May 16, 2019
NewsThe IRS has announced it has been working with CCH to ease the impact on taxpayers caused by their recent software outage. The IRS encourages these taxpayers with a May 15 deadline to file on time, if possible. Taxpayers who cannot file on time are encouraged to file for an extension. Taxpayers affected by the CCH outage who do not file an extension and file after the deadline should include the phrase “Late filed return due to CCH Software Outage” as a statement of reasonable cause. Potential tax returns affected by this include Forms 990, 1120, 1120S and 1065 for some calendar year and fiscal year filers. For the specific instructions, go to www.irs.gov/newsroom/irs-statement-and-instructions-regarding-recent-software-outage.
The Improper Payments Elimination and Recovery Act of 2010 and subsequent legislation strengthened agency reporting requirements and redefined “significant improper payments” in Federal programs. The Office of Management and Budget has declared the Earned Income Tax Credit (EITC) Program a high-risk program that is subject to reporting in the Department of the Treasury Agency Financial Report. The IRS estimates that 25.06 percent ($18.4 billion) of EITC payments were issued improperly in Fiscal Year 2018. The Treasury Inspector General for Tax Administration (TIGTA) initiated an audit because TIGTA is required to assess the IRS’s compliance with the reporting requirements contained in the Improper Payments Elimination and Recovery Act of 2010; Executive Order 13520, Reducing Improper Payments; and the Improper Payment Elimination and Recovery Improvement Act of 2012. The objective of this review was to determine whether the IRS complied with annual improper payment reporting requirements for Fiscal Year 2018. TIGTA found that the IRS provided all required EITC improper payment information for inclusion in the Department of the Treasury Agency Financial Report Fiscal Year 2018. The IRS has not reduced the overall EITC improper payment rate to less than 10 percent, but it has been approved for this exception to the annual reduction target reporting requirement. As an alternative the Department of the Treasury and the Office of Management and Budget collaborated on the development of a series of EITC supplemental measures for use in lieu of reduction targets. The IRS continues to incorrectly rate the improper payment risk associated with the Additional Child Tax Credit, the American Opportunity Tax Credit, and the Premium Tax Credit. The incorrect rating allows the IRS to circumvent the reporting of required information for these programs to the Department of the Treasury for inclusion in the Agency Financial Report. TIGTA identified over 2.2 million tax returns with an income discrepancy of $1,000 or greater from what was reported on the tax returns that were not selected for further review by the IRS. These taxpayers received over $10.1 billion, which included $6.0 billion in EITCs and over $1.9 billion in Additional Child Tax Credits. Finally, TIGTA identified that the IRS has initiated corrective actions in an effort to address prior deficiencies reported by TIGTA. These efforts are resulting in the improved identification and recovery of erroneous EITC payments. TIGTA recommended that the IRS implement a process to systemically identify and evaluate tax returns filed by individuals who have nonwork Social Security Numbers to prevent erroneous refunds of EITCs and ACTCs. IRS management agreed with this recommendation and plans to take appropriate corrective actions to identify and evaluate tax returns filed by individuals who use nonwork Social Security Numbers. To see the complete report, go to www.treasury.gov/tigta/auditreports/2019reports/201940039fr.pdf.
Tip of the DayTwenty or more employees? . . . Twenty may be the magic (or nightmare) number. That's the point at which many small businesses lose exemptions under many rules. For example, If you cover workers with health insurance you don't have to provide coverage to a worker once he or she turns 65--Medicare becomes their primary insurer, and your health plan a secondary. But only if you have less than 20 employees. There are other rules that use twenty employees as the threshold. Many state rules also have a employee-number threshold. Often it's around 20, but there are other thresholds, both on the state and federal level. And you may not be able to avoid them by setting up a separate company. In some cases there are aggregation rules where companies are under common control.
May 15, 2019
NewsThe trust fund recovery penalty is an assessment on a personal responsible for making employment tax deposits. Even though the business was the party who did not pay the tax, the penalty is the responsible individual. In Norman Hinerfeld (T.C. Memo. 2019-47) the petitioner attempted to settle a liability that exceeded $550,000 for $12,720. At the time the employment taxes were unpaid the petitioner transferred title to the property to his wife for $10,000. The transfer was not recorded and the petitioner continued to pay at least some of the expenses of maintaining the property. The IRS's Appeals Office rejected the petitioner's offer to settle the liabiity because it did not reflect the value of his residence. The Tax Court held that upholding a determination by Appeals that lacks an adequate explanation does not violate the doctrine of SEC v. Chenery Corp., 318 U.S. 80 (1943), when the failure of explanation relates to a legal issue rather than a matter committed to the agency's discretion. The Court also held that because (1) the petitioner failed to establish that his wife paid adequate consideration for the home, (2) the record demonstrates, or provides grounds for inferring, that the petitioner transferred title to his wife to protect it from his creditors, and (3) the petitioner failed to demonstrate any respect in which the transfer of the property affected his use or enjoyment of the property, the wife can appropriately be treated as holding title to the property as the petitioner's nominee; accordingly, the IRS's settlement officer did not abuse her discretion in rejecting an offer-in-compromise that did not reflect the property's value.
Tip of the DayGround lease . . . Put up a building on land you don't own? It's done all the time. Many big stores and franchisers do it. While unusual in rural environments, it's common in urban and suburban areas where land can be very expensive. Most ground leases are from as little as 30 to as much as 99 years. Retail stores that are approaching 50 years old are often due for a refurbishing if not an entire overhaul. And demographics can change in 50 years. But ground leases don't fit every business. And they can have clauses that may surprise the unwary. For one, the building may revert to the land owner at the end of the lease. And you may be restricted in the type of building you can put up or what sort of business you can conduct. The latter is particularly true if you're in a shopping center. You may find getting financing for the building more difficult because you don't own the land. In built-up suburban areas the cost of land, particularly in a prime location, can make buying the land out of reach when the economics of the project are calculated. On a really prime property, the owner may not be willing to sell at all. This is one time when you should get good advice--and read the terms of the lease carefully. Ask your attorney about anything you don't understand.
May 14, 2019
NewsIf you're a tax practitioner that uses a Wolters Kluwer CCH product to prepare and electronically file tax returns and a return is due May 15th (Forms 990, 1120, and 1065) you should be aware that the deadline has been extended to May 22, 2019. Returns will be considered timely if filed by that date and incur no late penalty or interest. The IRS announced that preparers must follow certain instructions, which will be communicated by CCH.
The IRS provides taxpayers with face-to-face tax assistance throughout the Nation at 359 Taxpayer Assistance Centers, 38 Virtual Service Delivery sites, and five Social Security Administration offices, as of December 31, 2018. The IRS should place these sites in optimal locations to service taxpayers who are likely to seek face-to-face assistance. These taxpayers include individuals whose issues cannot be resolved through other methods or who prefer face-to-face assistance to meet their tax obligations. The Treasury Inspector General for Tax Administration (TIGTA) initiated and audit to follow up on TIGTA’s previous audit recommendations and to evaluate IRS efforts to provide tax account assistance to taxpayers seeking face-to-face assistance. TIGTA found that the IRS established a face-to-face assistance appointment system in Fiscal Year 2017 that improved customer service for taxpayers. For example, the IRS reported that, since adopting this system, just over one-half of the taxpayers who call the appointment telephone line have their issues resolved by an IRS customer service representative and can avoid traveling to a face-to-face assistance site. However, the IRS did not comply with the congressional directives accompanying the Consolidated Appropriations Act of 2018 prior to closing Taxpayer Assistance Centers in Calendar Year 2018. For example, the IRS did not timely provide a report to congressional committees on the steps being taken to prevent Taxpayer Assistance Center closures. In addition, the IRS did not conduct a study on the taxpayer impact of closing four Taxpayer Assistance Centers that the IRS closed after Congress passed the Consolidated Appropriations Act of 2018. The IRS did not hold a public forum in the four affected communities at least six months prior to closing the Taxpayer Assistance Centers. Additionally, the IRS did not use its data-driven Geographic Coverage Model to expand face-to-face assistance to new locations. TIGTA’s analysis of this model identified 28 underserved areas with a high number of taxpayers who are likely to seek face-to-face assistance. These taxpayers have low income or received an IRS letter or notice and live more than 30 miles from a Taxpayer Assistance Center. To read the full report, go to www.treasury.gov/tigta/auditreports/2019reports/201940029fr.pdf.
Tip of the DayCritical checklist . . . In any substantial, unusual transaction there are usually many issues you don't normally deal with. You can't make a checklist to cover all of them, but you should make a checklist of the items that are most important. That goes for both business and personal transactions. Some items you probably don't even have to list--you'll definitely remember them. For example, you're buying a new home--four bedrooms and two baths are absolutely essential. That you won't forget. But will you remember to check for 500 gallons of oil storage, underground sprinklers, age of the roof, etc. Not enough outlets in the garage? That's not a big deal, you can put them in yourself. That's not something you need on the checklist. In business situations, the checklist can be much more important because you may be signing up for things that can't be easily changed. One business owner thought his attorney would check a purchase and sale agreement for a business being acquired. As a result the allocation of the purchase price was wrong and the purchase price wasn't contingent on certain employees remaining. The buyer considered both important.
May 13, 2019
NewsIn March the IRS announced that victims of the severe storms and flooding that took place on March 12, 2019 in Iowa may qualify for tax relief from the IRS following the declaration by the President that a major disaster occurred in the State of Iowa. The IRS has now added Louisa County to the areas of the state that qualify for relief. Thus, now individuals who reside or have a business in Fremont, Harrison, Louisa, Mills, Monona, Pottawattamie, Shelby, and Woodbury counties may qualify for tax relief. For complete details go to IRS announces tax relief for Iowa victims of severe storms and flooding .
Tip of the DayJoin a trade group . . . Most industries have one. Even obscure businesses that you may never heard of are likely to have some organization that assists them. It could be providing knowledge on upcoming contracts, new technologies or regulatory requirements, etc. They may also have a list of recommended businesses to assist you. For example, they may have a list of attorneys or CPAs that specialize in your industry. They often lobby state lawmakers or Congress on behalf of members. Often they can provide insurance for your business at a lower rate or other cooperative services. Membership fees vary, but in most cases, the benefits will substantially outweigh the cost.
May 10, 2019
NewsRevenue Ruling 2019-13 (IRB 2019-20) provides guidance on the application of subchapters C and S of chapter 1 of subtitle A of the Code to cash distributions made in redemption of the stock of C corporations formerly classified as S corporations and during the post-termination transition period as defined under Section 1377(b) of the Code. Specifically, the revenue ruling holds that to the extent a corporation makes such a cash distribution that is subject to Section 301 of the Code by reason of Section 302(d) of the Code, the cash distribution should reduce the corporation’s accumulated adjustments account (within the meaning of Section 1368(e) of the Code) to the extent of the proceeds of the redemption pursuant to Section 1368 of the Code.
Tip of the DayWhat do employees want in perks? . . . That's a pretty broad question. But when it comes to the summer one of the most appreciated perks are flex time. That includes being able to schedule days rather than forced to take a week at a time and a half day on Fridays. There are some variations of this theme, depending on the location and the industry. This is one time when you can give employees a perk at minimum cost.
May 9, 2019
NewsNotice 2019-34 provides the inflation-adjusted maximum value of a vehicle (including cars, vans and trucks) for 2019 for use with the fleet-average and vehicle cents-per-mile valuation rules, provides information about where this maximum value will be published in the future, and provides flexibility for 2018 and 2019 in the consistency requirements in the existing regulations relating to use of the fleet-average and vehicle cents-per-mile rules. Sections 1.61-21(d) and (e) of the Income Tax Regulations provide special valuation rules for employers to use in determining the amount to include in employee income for personal use of employer-provided vehicles. However, employers can only use these rules for vehicles with fair market values that do not exceed a maximum value that is adjusted for inflation each year under section 280F.
Tip of the DayEmployment tax form filing . . . The IRS is encouraging taxpayers who prepare their own payrolls and file the required Forms 940, 941, 943, 944, and 945 on paper to consider filing these electronically. You must purchase IRS-approved software and file with a provider. There may be a fee to file the forms electronically. The advantages are that you won't have to deal with paper, you'll get a confirmation of the filinng from the IRS and it's quicker. To find a provider, go to 94x Modernized e-File (MeF) Providers.
May 8, 2019
NewsThe IRS is reminding tax-exempt organizations that Wednesday, May 15, 2019, is the filing deadline for Form 990-series information returns for organizations operating on a calendar year. These types of information returns are normally due on the 15th day of the fifth month after the end of an organization’s accounting period. For more information go to Many tax-exempt organizations have until May 15 to file information returns.
Tip of the DayCommunicating with customers . . . If you do business over the internet you're at risk for a virus, malware, ransomware, etc. Chances are the only quick way you have of communicating with your customers (or vendors) is over the net. If have your own servers or use a provider you're at risk your site could go down leaving customers in the dark about your status. If it can happen to some of the biggest net users, it can happen to you. One major information site was down for two days as they scrubbed their system. Customers can understand when things like that happen, but they just want to know what's going on. You should have an alternate way of contacting customers. For most smaller businesses the best approach is to have an eblast set up on a different server. You may have other options, but you should have a plan ready to go.
May 7, 2019
NewsIf you're purchasing insurance in the marketplace, you may be entitled to an advanced premium tax credit the amount of which depends on your income. In Timothy Todd Fisher and Christina Fisher (T.C. Memo. 2019-44) the taxpayers did not get married until some time during the year at issue. The wife qualified for the credit before the marriage, but once the couple was married their income as above the threshold for qualifying. The taxpayers argued that they should not be required to repay the entire amount of the credit. The Court noted the regulations provide for an “alternative computation” to address circumstances where taxpayers are unmarried at the beginning of the taxable year, marry during the year, and file a joint return for the same taxable year. Taxpayers who qualify for the alternative computation may use it to compute their additional tax liability for the taxable year. To be eligible for the alternative computation, taxpayers must have been unmarried at the beginning of the taxable year and married at the end of the taxable year and at least one of them must have received advance PTC payments. The Court made the required computations and found that even considering the alternative computation of the credit for the premarriage months, the taxpayers did not qualify for any of the credit.
Tip of the DayMade a mistake on your 2018 return? . . . If you prepared the retun by hand and it's a math error that a reviewer would catch (e.g., you added cash charitable contributions of $650 and noncash contributions of $125 and entered $675 for total contributions) the IRS will catch the error, so there's no reason to act. On the other hand if you missed a $250 dollar contribution and you really had $900 in cash contributions, the IRS won't pick that up and you should file an amended return. You should file an amended return if you missed reporting income or deductions, failed to make an election (some elections can only be made on an original return), etc. Don't file an amended return for a missing form or schedule. The IRS will send a request. If you're filing Form 1040X (the way to do an amended return), you must do so on paper. If you used software to prepare your return, the program will help you prepare the amended paper copy. If you're expecting a refund, it can take up to 16 weeks to process. And don't forget your state return. You may have to file an amended return for the same reason. That's not something to overlook. The state will know if you filed an amended federal return. Fortunately, many states accept electronic amended returns.
May 6, 2019
NewsSenate Finance Committee Chairman Chuck Grassley is looking to extend the tax credit on biodiesel that expired at the end of 2017. The extension of this tax break would be included in a bill extending other expired tax provisions and has bipartisan support. If passed as currently proposed, the credit would be retroactive.
The IRS has issued several corrections to the final regulations (T.D. 9847) published on February 8, 2019 that provide guidance on Section 199A, the qualified business income deduction.
The IRS allows installment agreements to pay delinquent Federal unemployment taxes (FUTA) and employment tax liabilities. The rules are similar to installment agreements for income taxes--you must be currently in compliance with your tax obligations, including estimated tax requirements. In Coastal Luxury Management Inc. (T.C. Memo. 2019-43) the IRS Settlement Officer (SO) noted that the company owed a large balance on the prior quarter's employment taxes and was delinquent on the current quarter. The SO warned the taxpayer that unless she received a response to her questions regarding the amounts due and catch up if necessary, she would issue a closing letter. The SO subsequently gave the taxpayer a one week extension to catch up on the latest deposit. Hearing no response the SO closed the case. The Court sided with the IRS and sustained the proposed collection action.
Tip of the DaySell before it's too late . . . Not every business works out. Sometimes it's poor management; sometimes just bad luck. More than one business owner has held on to a dying business to the bitter end. That can be a costly move. At the end you may do little better than get pennies on the dollar for your assets. Worse, if you're not careful you could owe creditors out of your own pocket. If you can't stop the decline, try and sell your customer list, name, goodwill, etc. and your hard assets. A competitor may have been looking at your business. With the wolves at the door he may not pay much, but it is almost assuredly better than if you hold on to till . One service business walked away from a $250,000 offer after the owner died; the spouse considered it too low. She finally ended up with $25,000 for the remaining clients, who by then had good elsewhere, and received very little for the filing cabinets, desks, and computers. This is a time to get good advice. Your accountant should be able to decide the best moves.
May 3, 2019
NewsThe IRS has announced (IR-2019-84) the expansion of areas for issuing determination letters for certain retirement plans. Revenue Procedure 2019-20 details the addition of two areas for which retirement plan sponsors may now request determination letters. These two areas are (1) Statutory Hybrid Plans--plan sponsors may submit determination letter applications for statutory hybrid plans for the 12-month period beginning Sept.1, 2019, and ending Aug. 31, 2020 and (2) Plan Mergers--plan sponsors may submit determination letter applications for certain merged plans on an ongoing basis.
You should be able to identify the source of all deposits into your bank accounts. While that's rarely an issue for a taxpayer with a "regular" job, it's often important for someone who owns his own business. The IRS views any deposits as income and you may have to rebut that presumption. In Keith A. Bolles and Shelley R. Bolles (T.C. Memo. 2019-42) the IRS claimed that deposits into the taxpayers' bank accounts was higher than that reported on their return. They countered, saying the difference was for payment for the sale of a property they owned. But the IRS noted there was no transfer of title to the property and the testimony of the taxpayer indicated the difference was income. The Court held the taxpayers had unreported income.
Tip of the DayAppraisal required? . . . No estate tax return will be due--not even close--so you don't have to get an appraisal of the estate's assets. Right? Actually, wrong. When those assets are sold you'll have to report income from the sale and your basis in the property to determine the gain or loss. That basis is the fair market value of the asset on the date of death. If you have no way to prove your basis, the IRS could suggest a much lower basis the the actual value. How important that is depends on the asset. For some assets, such as a car, blue book value may be all that's necessary. For a house, rental property, unimproved land, a business etc., that won't work and a formal appraisal is critical. If a beneficiary or the estate will be selling the property soon after the decedant's death, that may not be necessary since the selling price is often the best indicator of the fair market value. Best advice? Check with your attorney or tax adviser to be on the safe side.
May 2, 2019
NewsDefinitions are important when it comes to tax law. But, the definition of a word or term can have different definitions depending on the Code section. One of those terms with multiple definitions is "modified adjusted gross income." In Charles W. Monroe and Rebecca A. Monroe (T.C. Memo. 2019-41) the taxpayers received monthly advance payments of the premium tax credit (PTC) to cover a portion of the monthly health insurance premiums. The taxpayer received some $35,000 in Social Security benefits, $5,297 of which was attributable to the current year and the remainder received as a lump sum pertaining to prior years. The taxpayers made a Sec. 86(e) election on their return for the year at issue with respect to the lump-sum payments received for prior years. The Tax Court followed the holding in Johnson (152 T.C. No. 6) earlier this year that such lump-sum amounts are includable in modified adjusted gross income irrespective of a Sec. 86(e) election for determining the amount of any premium tax credit. Thus, the taxpayers' income was above the treshhold for claiming the premium tax credit and the credit was disallowed.
Tip of the DayDisaster area relief . . . The IRS can provide relief to businesses and individuals affected by a natural disaster such has hurricanes, floods, snowstorms, etc. The relief can take the form of extended time to file returns, pay taxes, make elections, etc. Such relief is only provided if the president declares the area eligible for government relief. But many states have their own criteria and their own relief. The rules may be the same as the federal ones, or the state may provide relief for disasters not recognized at the federal level.
May 1, 2019
NewsDeducting legal fees and settlement claims can be tricky, particularly if more than one entity is potentially involved. In Rick B. Ferguson and Deanna Ferguson (T.C. Memo. 2019-40) a C corporation, an S corporation, and the Schedule C of the shareholder was involved. The C corporation was in the business of building custom homes; the S corporation manufactured, supplied and installed cast stone. A homeowner for which the businesses did work sued, alleging various problems with the construction of a dwelling, but the primary grievance pertained to the cast stone. The facts are involved by the taxpayer signed the settlement agreement in his individual capacity and transferred land a check drawn on his personal bank account as payment. The payments were recorded on the S corporations books as a loan from the taxpayer. The "loan" was not documentd and not interest accrued. The settlement payment and legal fees were deducted on the S corporation and passed through to the shareholders. The IRS disallowed the loss in its entirety. The IRS considered the settment payment as an unreimbursed employee business expense related to his employment with the C corporation. It did not allow a deduction for the legal fees or the loss on the deemed sales of the land. The IRS argued that the S corporation can't deduct any of the costs pertaining to the lawsuit because it did not pay or incur them. The Court noted that it had to look at the origin of the underlying claim and the origin of the claims stem from the C corporation and the S corporation. The Court held that 50 percent of the settlement pay was attributable to the S corporation and the taxpayer's payment of that amount was a deemed capital contribution to the S corporation followed by a payment by the S corporation. In the case of the C corporation, it's half of the liability that was paid by the shareholder was an unreimbursed business expense of the shareholder-taxpayer.
Tip of the DaySmall business is big business--for scammers too . . . About 20 years ago banks and other financial institutions, suppliers, etc. figured that out. It didn't take much longer for scammers to do the same. Working a small business they may not make as much per business, but there are more businesses, and they're easier targets. Make sure your firewalls, virus and malware protection, etc. is as good as you can afford. The best isn't likely to break the bank and will pay for itself. Then make sure your employees are cautious enough to not fall for any schemes. They should know that they can ask a supervisor or manager a question without being rebuffed. It only takes one to prove costly for a smaller company.
April 30, 2019
NewsThe IRS selects returns for examination to promote voluntary compliance. This requires the exercise of professional judgement in selecting returns to assure all taxpayers of equitable consideration and in making the most efficient use of staffing resources. The IRS uses a variety of sources to select returns for audit and strives to select those returns for which its examiners are likely to find areas of noncompliance. The Treasury Inspector General for Tax Administration (TIGTA) performed an audit to evaluate the Small Business/Self-Employed Division’s strategic priority selection methods used to identify individual income tax returns for examination by revenue agents and to assess the effectiveness of the strategic priorities with an emphasis on the Discriminant Function (DIF) selection method. TIGTA found that between Fiscal Years 2014 and 2016, the Small Business/Self-Employment Division Examination function (Examination function) used 10 strategies to group similar examination work. During each of these fiscal years, the Examination function established planned examined returns closed at the strategic priority level. However, the Examination function does not establish performance goals at the strategic level; rather, it uses cumulative direct examination staff years and cumulative closures combined for revenue agents and tax compliance officers to determine whether the examination plan was met. TIGTA found the Examination function did not take corrective action when actual closures exceeded or fell behind planned closures for a specific strategic priority. As a result, the IRS lost the opportunity to assess an additional $262.5 million on individual income tax return examinations by revenue agents for Fiscal Year 2016. TIGTA also reviewed the DIF scores for individual returns filed with the IRS during Calendar Year 2015, and examined and closed by revenue agents and tax compliance officers through December 2017. Even though the DIF identifies returns with examination potential, TIGTA found that, more often than not, the highest DIF score individual returns examined by revenue agents do not necessarily result in a higher net tax assessment for most examination classes. TIGTA recommended that (1) the IRS establish actionable performance goals, and monitor and take corrective action specific to staffing resources and closures for each strategic priority to ensure that it provides balanced examination coverage, and (2) determine why the highest DIF scores for individual returns examined by revenue agents and tax compliance officers did not result in higher net tax assessments than lower DIF scores for most examination classes. The IRS disagreed with the recommendations. The management response stated that Examination does not control how its examination plan is worked. It also stated that that National Research Program data supports its DIF models. It does not believe that the specific examination results in the report provide any actionable information relevant to the current DIF models. TIGTA believes that the IRS does control how the plan is worked and should make adjustments as needed to meet the plan. Moreover, the examination results should be used to improve the DIF. To read the complete report, go to www.treasury.gov/tigta/auditreports/2019reports/201930024fr.pdf.
Tip of the DayDon't insult the other party . . . You're negotiating to buy a business, rent space, hire an independent contractor, etc. and you low ball your offer without explanation. There may be a good reason for the low offer. For example, you're offered a business and it's both not a great fit and the business has some serious profitability issues. In decent shape it may be worth $200,000, but to you it's worth $25K. That may be what it's worth to you, but the seller may have put blood, sweat and tears into it over the years. Before making the offer you might preface it with an explanation to ease the pain. You might get the business at a good price. But insulting the seller can bring negative reprecussions.
April 29, 2019
NewsIn consolidated cases (James Clay and Audrey Osceola, 152 T.C. No. 13) the taxpayers were members of a Native American tribe. During the years at issue the tribe operated a casino on tribal land, owned communally by all members. The tribe made regular distributions from casino revenue to each member. The taxpayers received these distributions and did not report them as income. The IRS determined that the distributions were taxable to the taxpayers and, therefore, they had unreported taxable income in the amounts of the distributions. The IRS also determined that they were liable for Sec. 6662(a) accuracy-related penalties. The taxpayers had argued that the distributions were exempt from Federal tax because they were derived directly from tribal lands. The Court noted that the tribe made no allotment of land to its members. With respect to the penalties, the taxpayers argued that (1) the supervisory approval for the 2004 and 2005 substantial understatement penalties was not timely and (2) the supervisor's review itself was not meaningful. Section 6751(b)(1) generally provides that no penalty shall be assessed unless the IRS shows that “the initial determination” of the assessment was “personally approved (in writing) by the immediate supervisor of the individual making such determination”. The Tax Court held that the distributions to the taxpayers from casino revenue constituted unreported taxable income to them. In addition, for purposes of Sec. 6751(b), the Revenue Agent Report (RAR) and the 30-day letter, to which the (RAR) was attached, constituted the initial determination to assess penalties and that the IRS must show that written supervisory approval for penalties was obtained before the first formal communication to the taxpayer of the initial determination to assess penalties. The Court also held that the 30-day letter was the first formal communication to the taxpayer of the initial determination to assess penalties and that the IRS did not obtain written supervisory approval before the first formal communication of the initial determination to assess penalties and did not meet its burden of production for penalties under Sec. 7491(c).
Tip of the DayWithholding tax review . . . Get a big refund this year? Or did you owe? The IRS continues to advise taxpayers to check their withholdings. While the biggest shock should be over, that's still good advice, even if the only thing you do is to project what the difference between 2018 and 2019 will be like. For example, if you have a child turning 17 in 2019, you'll lose $1,500 of the child tax credit. That could be a substantial percentage for some taxpayers. Other reasons for checking are a change in jobs, your spouse returning to work or getting a full-time position, changes in your business, etc. If you're self-employed for the first time, you'll owe the self-employment tax, which can generate a surprisingly significant increase in your taxes. Many professionals say you shouldn't get a big refund. That's letting the government use your money for free. That makes sense if you need funds to run your business, or your investments are creating good returns. But if you're not saving the money or you're putting it in a savings account at 2 percent, you may be just as well off getting a big refund and putting the refund to good use. You definitely don't want to be in the position of owing a substantial amount next April if it means getting hit with a penalty for underpayment of estimated taxes.
April 26, 2019
NewsIt's all about the records. In Estate of Scott C. Ronning, Deceased, Harlan L. Paul, Personal Representative (T.C. Memo. 2019-38) the taxpayer's personal representative's reconstruction and estimation of income and expenses left much to be desired in the view of the Tax Court. Much of the taxpayer's records were destroyed when the fee for a storage facility was unpaid and the owner destroyed them. The Court noted that when a taxpayer's records are lost or destroyed through circumstances beyond his control, the taxpayer is entitled to substantiate deductions by reconstructing expenditures through credible evidence. The taxpayer contended that the deceased's illness resulted in the destruction of the business records. Therefore, the petitioner contended that they were destroyed through circumstances beyond his control. However, the Court believed the records were lost before his illness. The Court disagreed with the taxpayer's position that the loss of the record's were beyond his control. The Court went on to say that it considered all the reconstructed records that the taxpayer introduced at trial. In the Court's view, the reconstructed records, fully considered, did not establish the taxpayer's litigating position.
Tip of the DayGuaranteeing a loan? . . . Unless it's required for a business in which you're the sole owner, it's almost always a no win situation. First, why obligate yourself to pay off a debt where you will get no benefit? Even if there is a benefit, in most cases it's small compared to the risk. And make no mistake, if the primary obligor doesn't pay, the lender will quickly come after you. Second, you'll get no tax deduction for the interest unless the primary obligor actually defaults. He could be in a terrible financial situation, but if you pay the interest with the purpose of keeping him afloat, you'll still get no deduction. And that assumes that the tax law would allow a deduction for the interest if you otherwise qualify. For example, you guarantee your brother-in-law's car loan. He defaults and you pay the interest. That's personal interest and would not be deductible. Third, in some situations you may leave yourself open to more than the original obligation when the loan is open-ended. Finally, a lender who's looking at your credit will add the amount guaranteed to your debt load.
April 25, 2019
NewsTax law provides a credit equal to the sum of 20-percent of the qualified research and experimental expenditures over a base period amount, 20 percent of the basic research payments made to a qualified organization, an 20 percent of the amounts paid for qualified energy research. Only expenditures that represent research and development costs in the experimental or laboratory sense if they are for activities intended to discover information that would eliminate uncertainty concerning the development or improvement of a product. Costs for routine product testing don't qualify. The other issue in computing the credit is allocating costs to the research activity. For example, how much of a worker's salary was for research and how much for quality control testing. The Court noted that there are four tests that must be passed--the Section 174 test, the technological information test, the business component test, and the process of experimentation test. In Siember Milling Company (T.C. Memo. 2019-37) the taxpayer claimed the credit with respect to seven projects for the years at issue. The IRS argued that the taxpayer had not proven that substantially all of the activities for which it claimed credits were a part of a process of experimentation. The Court concluded that the taxpayer failed to establish that any of its projects met all four tests necessary for a project to constitute qualified research.
Tip of the DayMaximize customer traffic . . . The internet has reduced store traffic for many retailers. But most retailers have options on how to get at least some of those customers back in the store. How you do it can depend on a number of factors. For some it could be demonstrations, hands-on assistance in using a product or teaching a skill, free samples, repairs, or, in some cases, it can be as simple as an exclusive product line. For years many hardware stores have provided services such as glass cutting, screen and glass repairs for storm doors, etc. One local hardware store carries a line of gas and battery power tools that are only sold through dealers. Not only are they making money on the tools, the items are a big customer draw. What can you provide that a customer can't get on line or at a big box retailer?
April 24, 2019
NewsDeducting legal expenses can be very tricky. The IRS knows that and often examines those expenses on audit. In Ames D. Ray (T.C. Memo. 2019-36) the taxpayer sued his ex-wife for losses incurred related to investment fund she managed and for fraudulently conveying property. The Court noted legal expenses are deductible under section 162(a) as ordinary and necessary business expenses, but only if the expense is directly connected with, or proximately related to, the taxpayer's business. the deductibility of legal fees depends on the origin and character of the claim for which the expenses were incurred and whether the claim bears a sufficient nexus to the taxpayer's business or income-producing activities. The taxpayer claimed the losses were related to his computer programming business. The Court referred to the taxpayer's business as purported and did not find a sufficient connection between the legal fees and the purported business. In addition, the Court found the taxpayer was not engaged in a computer programming business. The Court also noted that Sec. 212 allows allows an individual to deduct all of the ordinary and necessary expenses paid or incurred: (1) for the production of income; (2) for management, conservation, or maintenance of property held for the production of income; or (3) in connection with the determination, collection, or refund of a tax. The Court did find that the taxpayer was entitled to a deduction for a portion of legal fees funds that were related to his ex-wife's fund management losses.
Tip of the DayHow will you distribute that product? . . . You've got a great product. It's tested well and it's priced right. More often than one expects, getting the product on store shelves is the tough part. (Not every product can be sold on the internet.) You're not the only product looking for space, and a retailer wants something that will turnover quickly. You could use an intermediary, and that often makes the most sense for a small company. But they'll take a cut of the sales. Make sure your financial forecasts take that into account.
April 23, 2019
NewsRevenue Procedure 2019-19 (IRB 2019-19) updates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of Sec. 401(a), 403(a), 403(b), 408(k), or 408(p) of the Code, but that have not met these requirements for a period of time. This system, the Employee Plans Compliance Resolution System (“EPCRS”), permits Plan Sponsors to correct these failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the Self-Correction Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit Closing Agreement Program (“Audit CAP”). Under the program, a plan sponsor can correct defaulted plan loans, the failure to have spousal consent on a plan and excessive plan loans.
Can the IRS collect restitution amounts determined by a court in the same way it collects taxes? That was the issue in Randy Alan Carpenter (152 T.C. No. 12). The petitioner pleaded guilty to violating Sec. 7206(1) by willfully filing false returns for 2005 and 2006. At sentencing, the District Court ordered the petitioner to pay restitution to the IRS, ordered that restitution was due immediately, and set a schedule of payments. The District Court also ordered that he pay all outstanding tax as an additional condition of his supervised release. Though the petitioner made each scheduled payment, he did not pay the full restitution amount. The IRS assessed against him the full amount of restitution ordered in reliance on Sec. 6201(a)(4). When the petitioner did not pay the assessed amount the IRS began collection action. Before the first payment was due under the schedule set by the District Court, the IRS sent a final notice of intent to levy and filed a notice of Federal tax lien. Following a CDP hearing IRS Appeals sustained the proposed collection actions. The petitioner contended that Sec. 6201(a)(4) does not grant the IRS independent administrative authority to collect amounts of criminal restitution. The petitioner also contended a schedule of restitution payments limits the amount the IRS may administratively collect absent a further order by the sentencing court. The Tax Court held that Sec. 6201(a)(4) grants the IRS independent authority to collect administratively amounts of criminal restitution assessed under that section and that a payment schedule included in an order for criminal restitution that is due immediately does not limit the IRS's authority to collect administratively unpaid amounts of such restitution. Finally, the Court held the IRS Appeals Office did not abuse its discretion in sustaining the collection actions at issue.
Tip of the DaySelling your vacation home? . . . The sale of your principal residence may not have significant tax consequences. Many taxpayers qualify for the $250.000/$500,000 gain exclusion, even before adding in home improvements done. That's less likely to be true for a vacation home. First, there's no gain exclusion on the sale. Second, if the property is in another state, you'll likely have to file a nonresident income tax return in that state reporting the gain. (You may have to do the same on your principal residence if you move out of the state before selling the house.) Third, if you rented the property, you most likely took depreciation and that may have to be recaptured on the sale of the property. Keep good records on any capital improvements to a vacation home, it'll help reduce any gain. By the way, you'll have to report any gain on other property held in the state such as a vacant lot. A quick check with your tax advisor may save headaches later.
April 22, 2019
NewsIn Maria Ivon Moya (152 T.C. No. 11) the taxpayer assigned no error to the IRS's adjustments underlying his determinations of deficiencies in the taxpayer's income tax. Rather, the taxpayer challenged the IRS's determinations on the grounds that, in examining her tax returns, the IRS violated certain rights accorded her by the Taxpayer Bill of Rights adopted by the IRS in 2014. The Tax Court held that the taxpayer having failed to assign error to the IRS's adjustments or to present any evidence at trial with respect to the adjustments, is deemed to concede them and that a proceeding to redetermine a deficiency in tax involves a trial de novo, and the taxpayer did not persuade the Court to deviate from the principle articulated in Greenberg's Express, Inc., and look behind the notice of deficiency. The Court further held that the tax deficiencies were sustained.
Tip of the DayDon't beat up your customer . . . You may have the only game in town and can raise prices whenever you want. But even if your customer can't go elsewhere or find a subsitute, they could simply drop the product or service. That's happened in some pricey real estate. When times were good, a retail tenant could do little else but just grin and bear a substantial rent increase on prime space. But with competition from the internet, some have simply left the building. The rent made staying uneconomical. In many situations when your customer makes money, you make money. If your customer can't survive, you can't either.
April 18, 2019
NewsVictims of the severe storms and flooding that took place on March 12, 2019 in Iowa may qualify for tax relief from the IRS. The Service has added Pottawattamie and Shelby counties to those qualifying. Now, Individuals who reside or have a business in Fremont, Harrison, Mills, Monona, Pottawattamie, Shelby, and Woodbury counties may qualify for tax relief.
The IRS has announced (IR-2019-77) the release of a six-year plan to modernize the agency’s Information Technology systems and improve a variety of taxpayer services critical to the nation’s tax system. The plan outlines a bold strategy to enable business transformation focused on improving services for taxpayers and the tax community while protecting taxpayer data The IRS Integrated Modernization Business Plan is anticipated to cost between $2.3 billion to $2.7 billion over six years through Fiscal Year 2024. Some components of the plan are in place for the current year, and the administration’s budget proposal for Fiscal Year 2020 includes $290 million in funding for the plan. The plan envisions the IRS being able to:
For more information, go to FS-2019-9, IRS Modernization Plan.
Tip of the DayNegotiating in good faith . . . The negotiations for the business, a long-term contract, etc. may be brutal, but you should still be negotiating in good faith. The seller of a business is asking $700,000. You say you're interested but the price has to come down to $500,000. You haggle over that price and some conditions for six weeks and then abruptly drop your price to $250K without an explanation. That puts the seller in the position of having wasted time and money and the business may be harder to sell since you've taken it off the market. If it can be shown you intended to drop your price all along, you could be sued for negotiating in bad faith and you could be responsible for the other party's costs. Even if you don't have a lawyer working on the negotiations with you, you should have one you're keeping abreast of the situation and ask for advice before major decisions.
April 18, 2019
NewsVictims of the severe winter storm, straight-line winds, and flooding that took place on March 9, 2019 in Nebraska may qualify for tax relief from the IRS. The Service has updated the list of counties twice since the original release. Now, individuals who reside in or have a business in the counties Antelope, Boone, Boyd, Buffalo, Butler, Burt, Cass, Colfax, Cuming, Custer, Dodge, Douglas, Hall, Howard, Knox, Madison, Nance, Nemaha, Pierce, Platte, Richardson, Saline, Sarpy, Saunders, Stanton, Thurston, and Washington counties, and the Santee Sioux Nation may qualify for tax relief.
The IRS has issued guidance (REG-120186-18 providing additional details about investment in qualified opportunity zones. The proposed regulations allow the deferral of all or part of a gain that is invested into a Qualified Opportunity Fund (QO Fund) that would otherwise be includible in income. The gain is deferred until the investment is sold or exchanged or Dec. 31, 2026, whichever is earlier. If the investment is held for at least 10 years, investors may be able to permanently exclude gain from the sale or exchange of an investment in a QO Fund. Qualified opportunity zone business property is tangible property used in a trade or business of the QO Fund if the property was purchased after Dec. 31, 2017. The guidance permits tangible property acquired after Dec. 31, 2017, under a market rate lease to qualify as “qualified opportunity zone business property” if during substantially all of the holding period of the property, substantially all of the use of the property was in a qualified opportunity zone. A key part of the newly released guidance clarifies the “substantially all” requirements for the holding period and use of the tangible business property. The guidance notes there are situations where deferred gains may become taxable if an investor transfers their interest in a QO Fund.
Tip of the DayMake money at home? . . . Want to make $500 a day stuffing envelopes at home? Good luck with that. Make money at home schemes, along with a number of others, have been around at least 50 years. Why? Because they continue to work. It used to be ads in magazines, now you're getting them through emails or online in some way. The delivery methods may have changed but there's still one thing in common--they don't work. And worse, you'll probably be out enough cash to hurt.
April 17, 2019
NewsTalk to your attorney before you run out and dissolve a corporation or other entity. You might want to keep the corporation alive for a while, even if it has no assets. In Timbron International Corporation; Timbron Holdings Corporation (T.C. Memo. 2019-31) the two corporations had their corporate powers and rights suspended by the State of California and were not reinstated until after the deadline for filing a petition with the Tax Court. (The rules very from state to state, but the suspension can be for failure to file tax returns, or even failure to file a $25 annual report.) The Court held that since the corporations lacked the capacity to file a petition in Tax Court. Thus, the Court did not have jurisdiction and dismissed the cases.
Tip of the DaySales tax and related parties . . . Most states provide an exemption for sales of property to a related party. For example, the transfer of a car from a father to his daughter. How far the exemption goes depends on the state--most are limited to immediate family. Transfers to another entity such as from a shareholder to a corporation aren't as universal. Most states do provide an exemption where assets are transferred on the initial incorporation (e.g., where a taxpayer contributes assets in exchange for stock in the corporation) or startup of a partnership.
April 16, 2019
NewsTravel expenses are deductible if you're away from your tax home. For example, you live in Boston and spend two weeks on a consulting job in San Francisco. Airfare, lodging, etc. are deductible. But if that consulting job is basically full-time for 14 months, your tax home becomes San Francisco and the travel is no longer deductible. (This is a complex area; check the rules carefully.) In Michael E. Brown and Miriam L. Mercado-Brown (T.C. Memo. 2019-30) the taxpayer was an independent contractor carrying on a "concierge CFO business". He has had three clients simultaneously, but he entered into a three-year contract with Co. X and was required to work four days a week in Pennsauken, New Jersey. He returned to his home in Atlanta, Georgia, for the rest of the week. Company X was the taxpayers' sole source of income for the years at issue. The IRS disallowed the taxpayer's deductions for his traveling expenses between Atlanta and Pennsauken for two years. The Court noted that even though the contract could be terminated, the taxpayer could not have expected the assignment to be concluded within a reasonably short period. The Court sided with the IRS in denying the travel expenses. The Court also allowed the accuracy-related penalty noting the taxpayer was a CPA with a master's degree in finance and prepared his own tax return. The Court said his experience and training should have alterted him to the dubiousness of his reporting position.
Tip of the DayDon't throw those files in the closet . . . If your tax return is filed, don't put the files away just yet. If you haven't done so already, this is a good time to review investments, analyze how your rental properties or other investments are working for you, etc. Clearly, you should do it more frequently than once a year, but if you don't do it quarterly, now is a good time. Then, before putting them away, decide on your retention period. Some only need to be save four years; records showing basis in assets should be saved until four years after you file the return disposing of the asset. Now is also a good time to see what old documents you can shred. If in doubt, ask your accountant.
April 15, 2019
NewsThe IRS announced (IR-2019-17) the results of a national two-week education and enforcement campaign to combat employment tax crimes featuring visits to nearly 100 businesses showing signs of potential serious noncompliance and taking several dozen legal actions against suspected criminals.
The IRS's Whistleblower Office denied the petitioner's whistleblower award claim under Sec. 7623(b). After the petitioner filed a petition challenging the IRS's decision, the IRS filed a motion to remand this case to the Whistleblower Office for further consideration. The petitioner objected to the granting of the IRS's motion. The Tax Court held in appropriate circumstances this Court may remand a whistleblower case to the Whistleblower Office. The Court further held that because (1) the IRS has identified substantial and legitimate concerns that support a remand, (2) remand will conserve the Court's and the parties' time and resources, and (3) the petitioner will not be unduly prejudiced, the IRS's motion to remand was granted. (Whistleblower 769-16W 152 T.C. No. 10)
Tip of the DayTimes up . . . Put down your pens and pencils. If you're still working on your return and it's a complicated one, consider an extension. Doing so will give you more time to put it aside and review it in detail in a couple of days. An extension will not increase your chances of an audit. You should be sure you're fully paid to avoid any late payment penalties. You should also file an extension if you're missing information like a K-1, 1099, etc.
Copyright 2019 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