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September 27, 2022
NewsThe IRS has iaasud updated per diem allowances for the high-low per diem method and for the transportation industry for the fiscal year October 2022 throuh September 2023. Notice 2022-44 also updates the areas that qualify as high cost. A number of areas have been added and, in a number of cases, the dates the high-cost rates apply have changed.
Notice 2022-45 extends the deadline Notice 2022-45 extends the deadline for amending an eligible retirement plan (including an individual retirement arrangement or annuity contract) to reflect the provisions of section 2202 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and section 302 of Title III of the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Under this notice, the extended amendment deadline applicable to (1) a qualified retirement plan or section 403(b) plan that is not a governmental plan or (2) an IRA is December 31, 2025. Later deadlines apply with respect to governmental retirement plans (including governmental plans under section 457(b) of the Code.
Tip of the DaySupply chain problems over? . . . The worst may be over for many businesses, but don't relax just yet. There is considerable labor turnover and unrest. That could result in strikes, work stoppages, or simply undermanned suppliers. That could result in delayed shipments. The good news is that any delay from these sources is likely to be relatively short term. But if you tend to carry only a couple of days of inventory, you could be vulnerable.
September 26, 2022
NewsThe IRS is reminding (IR-2022-163) struggling individuals and businesses, affected by the COVID-19 pandemic, that they may qualify for late-filing penalty relief if they file their 2019 and 2020 returns by September 30, 2022. Besides providing relief to both individuals and businesses impacted by the pandemic, this step is designed to allow the IRS to focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season. The relief, announced last month, applies to the failure-to-file penalty. The penalty is typically assessed at a rate of 5% per month, up to 25% of the unpaid tax, when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36, posted on IRS.gov.
Tip of the DayYou think an employee has been embezzling--now what? . . . Well, don't go accusing him until you talk to an attorney. You could find yourself in trouble and it may blow your case against the employee. In some cases it could even get you sued. Some CPAs can also advise you on the next step, but many small firms may not have experience in the field. By the way, employee embezzlement is much more common than you think and often the sums stolen can be far larger than you could imagine. More than one small business has been bankrupted by an employee.
September 23, 2022
NewsThere are penalties and then there's the fraud penalty. The fraud penalty is equal to 75 percent of the unreported tax. In Daniel Metz (T.C. Memo. 2022-33) the taxpayer had wage income that he received from a company where he was a managing member and employee, but failed to report. The IRS used the bank deposits method to reconstruct the taxpayer's income. The taxpayer objected to the method but the Court found the approach reasonable since the taxpayer refused to cooperate and asserted frivolous arguments. (The IRS's reconstruction of income is presumed correct. The taxpayer can rebut that presumption with the proper evidence.) The IRS also assessed the fraud penalty. The Court cited the "badges of fraud" that include (1) understating income, (2) keeping inadequate records, (3) giving implausible or inconsistent explanations of behavior, (4) concealing income or assets, (5) failing to cooperate with tax authorities, (6) engaging in illegal activities, (7) supplying incomplete or misleading information to a tax return preparer, (8) providing testimony that lacks credibility, (9) filing false documents (including false tax returns), (10) failing to file tax returns, and (11) dealing in cash. While no single factor is dispositive, the existence of several factors is persuasive circumstantial evidence of fraud. The Court found that he filing of delinquent returns, coupled with a demonstrated pattern of understating income, efforts to conceal income, and failure to make estimated tax payments, showed fraudulent intent.
Housing market side effects . . . The reduced turnover, and higher costs of a new home, is likely to take its toll on the economy in more than one way. Not only have house prices risen, but the cost to finance a new home has risen significantly with the higher interest rates, and the ride to higher rates is not over. That means buyers, who normally purchase new furniture, replace appliances, redo kitchens and baths, buy hand and outdoor tools, etc. along with a new home aren't going to spend as much as in the past. If that's one of your markets, keep that in mind.
September 22, 2022
NewsThe IRS has issued guidance (CC Memorandum 202237010) addressing improper forgiveness of a Paycheck Protection Program loan (PPP loan). The guidance confirms that, when a taxpayer's loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiveness from income and must include in income the portion of the loan proceeds that were forgiven based upon misrepresentations or omissions. Taxpayers who inappropriately received forgiveness of their PPP loans are encouraged to take steps to come into compliance by, for example, filing amended returns that include forgiven loan proceed amounts in income. Many PPP loan recipients who received loan forgiveness were qualified and used the loan proceeds properly to pay eligible expenses. However, the IRS has discovered that some recipients who received loan forgiveness did not meet one or more eligibility conditions. These recipients received forgiveness of their PPP loan through misrepresentation or omission and either did not qualify to receive a PPP loan or misused the loan proceeds.
IR-2022-161 updates the tax relief for Hurricane Fiona victims in Puerto Rico. Now Hurricane Fiona victims in all 78 Puerto Rican municipalities have until February 15, 2023, 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 anywhere in the Commonwealth of Puerto Rico qualify for tax relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on September 17, 2022. As a result, affected individuals and businesses will have until February 15, 2023, to file returns and pay any taxes that were originally due during this period. Individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, will now have until February 15, 2023, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief. The February 15, 2023, deadline also applies to quarterly estimated income tax payments due on January 17, 2023, and the quarterly payroll and excise tax returns normally due on October 31, 2022 and January 31, 2023. Businesses with an original or extended due date also have the additional time including, among others, calendar-year corporations whose 2021 extensions run out on October 17, 2022. Similarly, tax-exempt organizations also have the additional time, including for 2021 calendar-year returns with extensions due to run out on November 15, 2022.
Tip of the DayAdjustable rate mortgage? . . . Should you go with one in the current market? Depends on a number of factors. The starting interest rate for a adjustable mortgage (ARM) is likely to be 2 percentage points below a fixed 30-year mortgage. That could save almost $8,000 in the first year on a $400,000 mortgage. But several years down the road that rate is going to pop up to the market. The big question is, 'what's the market going to be in, say 5 years?" Of course, there's always the possibility that you'll sell and move before that question comes up. There are several considerations here. First, do you really need a house? If you're living alone or with a new spouse you may be able to wait until house prices and/or interest rates come down. If you've got two kids you'll need something bigger than a studio and that means rent that's closer to what you'd pay for a house. Second, where will you be from an earnings standpoint when the rate jumps. If your spouse is going back to work after a hiatus or you expect to be earning much more or uncle Fred is expected to expire and leave you a nice nest egg, there's a good chance you can pay down principal on that ARM to make living with the higher interest rate easier. The factors to consider are both financial and personal. Think it through carefully and get good advice.
September 21, 2022
NewsTIGTA (Treasury Inspector for Tax Administration) is responsible for annually determining whether the IRS complied with the IRS Restructuring and Reform Act of 1998 requirement to notify taxpayers and their authorized representatives of the right to a Collection Due Process (CDP) hearing prior to issuing levies and to suspend levy action during the time frames required pursuant to Code Sec. 6330. TIGTA reviewed levies issued for 57,775 taxpayers by Field Collection(48,781) and the Automated Collection System (8,994) during the period October 1, 2020, through September 30, 2021, and found that the IRS generally complied with legal and administrative requirements. However, there were some instances of noncompliance resulting in taxpayers' rights being potentially violated. TIGTA found 44 taxpayers were not notified and 7 were not timely notified of their CDPrights; 17 taxpayers did not receive a new CDP notice after an additional tax assessment was made; 105 (esztimated) taxpayers had levies erroneously issued wahile a CDP hearing was pending. In addition, 753 (estimated) taxpayers whose authorized Power of Attorneys were not issued a copy of the CDP notice as required, and 421 (estimated) taxpayers who had a CDP notice issued to a representative that the taxpayer had not authorized to receive notices. Go to www.treasury.gov/tigta/auditreports/2022reports/202230061fr.pdf.
In James Franklin, Plaintiff (U.S. Court of Appeals, Fifth Circuit) the IRS found the taxpayer failed to file accurate tax returns and had not reported a foreign trust where he was the beneficial owner and assessed penalties. The taxpayer filed a Freedom of Information Act request for the IRS files and, according to the taxpayer, found deficiencies in the IRS procedures that he felt would void the penalties, but did not file an administrative appeal with the IRS. Instead he filed an offer-in-compromise for a nominal sum aszserting doubt as to liability. The IRS rejected the offer. The taxpayer also challenged the constitutionality of the passport revocation rule. A District Court dismissed all of the taxpayer's claims and found it lacked jurisdiction over each of the Sec. 6751 claims. The taxpayer appealed to the Fifth Circuit court and it affirmed all of the District Court's holdings.
Tip of the DayOverdue accounts receivable? . . . The statistics indicate that accounts more than 90 days overdue have a poor chance of being collected. But simply playing the odds and forgetting about the account may not be the best approach. Some of the accounts may be collectible, just simply in dispute. For example, the customer ordered $500 worth of merchandise and is disputing $150 of the charge for some reason. Some customers won't pay any part of the bill until the entire charge is resolved. In the worst case you'll have to write off $150. You'd still be able to collect $350. Or maybe you delivered the wrong items and a quick exchange will get you the entire payment and keep the customer happy. While you may not have the time to research all overdue receivables, spending time on the larger ones should pay off.
September 20, 2022
NewsThe IRS has announced that victims of Hurricane Fiona beginning September 17, 2022, now have until February 15, 2023, to file various individual and business tax returns and make tax payments. Individuals and households affected by Hurricane Fiona that reside or have a business in all 78 municipalities in Puerto Rico 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 September 17, 2022, and before February 15, 2023, are postponed through February 15, 2023. This means individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, now have until February 15, 2023, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief. Go to IRS Announces Tax Relief for Puerto Victims of Hurricane Fiona.
IR-2022-159 provides updated information on the Work Opportunity Tax Credit (WOTC), available to employers that hire designated categories of workers who face significant barriers to employment. For employers facing a tight job market, the WOTC may be able to help. Today's updates include information on the pre-screening and certification process. To satisfy the requirement to pre-screen a job applicant, on or before the day a job offer is made, a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must be completed by the job applicant and the employer. After pre-screening a job applicant, the employer must then request certification by submitting Form 8850 to the appropriate state workforce agency no later than 28 days after the employee begins work. Other requirements and further details can be found in the instructions to Form 8850.
Tip of the DayForecasting . . . Trying to project sales from a small base can be tricky. Doubling sales in a month sounds easy when you're starting out and sell 9 bicycles one month and 18 the next. But doubling from 18 to 36 seems unlikely, particularly if you're dealing with a local market. Consider the factors surrounding sales. The size of your market, your base sales, what competitors are doing, outside factors, etc. Bike sales skyrocketed during the pandemic as people were working from home and had the time to ride, couldn't go to the gym, etc. Now that those factors have changed bike sales have returned to more normal levels. There's a good chance sales will be above historic levels because of the new interest, but bikes can last a long time.
September 19, 2022
NewsIn a speech at an IRS facility, Treasury Secretary Janet Yellen said that the new funding will not be used to increase audits of lower income taxpayers. That's been indicated to mean taxpayers making less than $400,000 a year. Instead, the additional funding will be used to upgrade systems, and increase support activities such as improving phone assistance for taxpayers. To read the complete speech, go to Remarks by Secretary of the Treasury Janet L. Yellen.
Tip of the DayStudent loan forgiveness . . . Forgiveness of debt normally produces income, with certain exceptions. The American Rescue Plan Act of 2021 modified the treatment of student loan forgiveness for discharges in 2021 through 2025. Generally, if the loan is canceled or repaid by someone else, you must include the amount that was canceled or paid on your behalf in your gross income for tax purposes. However, in certain circumstances, you may be able to exclude this amount from gross income if the loan was one of the following.
September 136 2022
NewsThe IRS has announced that IRS Free File will remain open through the extended deadline of October 17, 2022 at midnight, eastern time.
The Treasury Inspector General for Tax Administration (TIGTA) performed a review and, based on a sample, determined that the IRS did not always timely mail the Notice of Fe3deral Tax Lien filing (NFTL) and notice of collection due process (CDP) appeal rights to the taxpayers' last known addresses due to a programming error that has since been corrected. In addition, undelivered lien notices were not properly worked to identify a correct address for the taxpayer in every case. A judgmental sample of 34 undelivered lien notices identified five cases for which the address on the original Sec. 6320 CDP lien notice and the current address on the IRS computer system did not agree. For the complete report, go to www.treasury.gov/tigta/auditreports/2022reports/202230060fr.pdf.
Tip of the DayReview your portfolio . . . It may only be September, but it's not too early to review your portfolio, particularly in light of the current market activity. You've undoubtedly got some stocks that have done well in the past couple of years--and some that have, well, underperformeed. This could be a good year to take some gains and some offsetting losses. While excess losses can be carried forward, that may not be the most efficient way to use them. Keep in mind, the object is to maximize your wealth. Don't take losses just to save tax dollars.
September 15, 2022
NewsThe IRS has issued proposed regulations (REG-125693-19) relating to the IRS Independent Office of Appeals' resolution of Federal tax controversies without litigation and relating to requests for referral to that office following the issuance of a notice of deficiency to a taxpayer by the IRS. The proposed regulations reflect amendments to the law made by the Taxpayer First Act of 2019. The proposed regulations apply to all persons that request to have a Federal tax controversy considered by that office. This document also provides a notice of a public hearing on these proposed regulations.
Tip of the DayBuying a house and business together? . . . It's not that unusual to buy both a home and a business in the same deal. For example, you're buying a house and an orchard with outbuildings for storage, maybe even equipment such as a tractor. If you plan on operating the business yourself or leasing the property and equipment (and probably even if you're not) there are some steps you should take to make sure you maximize your tax benefits and minimize any disputes with the IRS. After buying you'll be depreciating the property. That's when the trouble begins. Depreciation will depend on the relative values of the assets at the time of purchase. The IRS will claim the house and land (both nondepreciable, except for a home office or if you use the house for rental, etc.) were worth much more at the time of purchase than you claim. The IRS will want to ascribe a lower value to any equipment (which can usually be quickly written off) than to buildings (which have a longer writeoff). Things become even more complicated in some farming applications or if special purpose structures (such as a greenhouse) are involved. If possible, have the purchase price of the assets broken out on the purchase and sale agreement. Better yet, have one contract for the house and its land and another for the business and its assets (with a breakdown of the assets). What if the seller won't agree to either? Get an appraisal on all the assets as close to the closing date as possible. (Before is better. You may find the property isn't worth as much as you think.) Any appraisal costs will be returned many times over if you're ever audited by the IRS. Ask your tax adviser and attorney for their input. The same advice applies to the purchase of a business and a building. If audited, you can be sure the IRS will challenge any allocation of the purchase price among the assets. You'll be in a better position if you follow the advice above.
September 14, 2022
NewsThe IRS has added Casey and Harlan Counties in Kentucky to those where victims of severe storms, flooding, landslides and mudslides beginning July 26, 2022 recieve tax relief from the IRS. As a result individuals and households affected by the severe storms that reside or have a business in Breathitt, Casey, Clay, Cumberland, Floyd, Harlan, Johnson, Knott, Lee, Leslie, Letcher, Lincoln, Magoffin, Martin, Owsley, Perry, Pike, Powell, Whitley and Wolfe counties qualify for tax relief. Go to IRS Announces Relief for Victims of Kentucky Storms.
Notice 2022-39 provides rules that claimants must follow to make a one-time claim for the credit and payment allowable under Secs. 6426(d) and 6427(e) of the Code for alternative fuels sold or used during the first, second, and third calendar quarters of 2022. The rules are prescribed pursuant to the Inflation Reduction Act. Notice 2022-39 also provides instructions for how a taxpayer's liability for the excise tax imposed by Sec. 4081 may be reduced by claiming the alternative fuel mixture credit allowable under Sec. 6426(e) for the first and second calendar quarters of 2022.
Tip of the DayEstimated taxes due . . . Estimated taxes are due September 15. If you underpaid for the first two quarters you should add any deficit to this payment. That won't correct an underpayment in the first two quarters, but at least you'll stop the interest from running on the underpaid amount. And making estimated payments is more important now that the interest rates have shot up. For this quarter last year they were 3 percent on underpayments. For the quarter starting October 1, they're up to 6 percent. While it's almost certain to be much smaller, the same is generally true for state estimated payments.
September 13, 2022
NewsThe Treasury Inspector General for Tax Administration (TIGTA) initiated an audit to assess the IRS's efforts to ensure individual taxpayers' compliance with the net operating loss (NOL) provisions associated with the CARES Att and Form 1045 Application for Taentative Refund. TIGTA found in spite of initial actions to promote more efficient processing of applications for tentative refunds, including the ability to e-fax these applications, the IRS was unable to timely process the large volume of applications and accumulated a large backlog. The IRS is statutorily required to process tentative refund applications within 90 days. However, the number of Forms 1045 considered over-aged (i.e., not processed within 90 days) increased from 900 in Fiscal Year 2020 to 7,585 in Fiscal Year 2021. The cases remaining in ending inventory (i.e., not processed by the end of the fiscal year) went from 1,626 in Fiscal Year 2020 to 8,974 in Fiscal Year 2021. The overall impact has been negative for both taxpayers, whose potential refunds have been delayed, as well as the Federal Government, whichmust pay the accumulated interest due to taxpayers on these delayed refunds. IRS officials stated that CARES Act changes presented a different compliance risk because they were generally more favorable to the taxpayer. As such, they believed compliance risk was not as high as in other areas and made no effort to update examination plans to ensure that taxpayers complied with the provisions of the CARES Act. Finally, the IRS did not change the criteria it used to identify potentially noncompliant cases during NOL processing that would require further scrutiny by the IRS's Examination functions despite the large volume of cases and, at times, significant losses being carried back under the CARES Act. To read the complete report, go to www.treasury.gov/tigta/auditreports/2022reports/202236048fr.pdf.
Tip of the DayEstimated taxes and S corporations . . . Generally, an S corporation doesn't pay taxes. The income and losses are passed through to the shareholders and reported on their individual returns. But when is the income of the S corporation income to the shareholder for estimated tax purposes? That is, if the shareholder's share of S corporation earnings for the first 3 months of the year is $50,000, must the shareholder take that amount into income when computing his or her estimated taxes? The answer is that you have to use the quarterly income of the S corporation for estimated tax purposes. That means you've got to get information from the S corporation on a regular basis. The other, simpler, alternative is to base your estimated taxes on last year's liability. That is, pay in each quarter an amount equal to one-fourth of last year's liability. That's not only simpler, it's a smarter move if your income this year is higher than last. However, if this year's income is lower, annualizing this year's income each quarter will result in lower estimated payments.
September 12, 2022
NewsYou can exclude up to $250,000 ($500,000 if married filing joint) of the gain on the sale of the house if you used it as your principal residence for two out of the five most recent years. But, as always, the rules are more involved. If you can show the used the house as your residence for less than two years as a result of unforeseen circumstances such as a change in employment or for health reasons. In Steven W. Webert and Catherine S. Webert (T.C. Memo. 2022-32) the taxpayers purchased and resided in a house but due to the wife's multiple health problems they decided to sell the house. Because of the real estate market they had difficulty selling and decided to rent the house to third parties. They finally sold the house in 2015 and excluded the gain on the sale. The IRS objected to the exclusion. They reported the rentals on Schedule E of their tax return. Temporary absences for health conditions may still qualify for the exclusion, but the Court noted that the taxpayers had not shown the required causal connection between the health problems and the absence or the sale. The Court held that there was no genuine dispute of material fact regarding whether, for the years 2010 through 2015, the taxpayers did not use the house as their principal residence. There is a genuine dispute of fact regarding whether the primary reason for the taxpayers' sale of house was the wife's health, but the parties have not yet addressed whether, as a matter of law, that disputed fact is a “material” fact. The Court granted the IRS's motion for summary judgment in part and denied in part becuase there was a genuine dispute of fact on whether the health issue was material to the amount of the exclusion.
Tip of the DayNontraded investments . . . Considering an investment that's not traded on a regular market? These investments frequently produce a better return than you can get with a stock in a regular market, but there are a number of caveats. First, your ability to get rid of the investment may be restricted. You may only be able to do so at certain times of the year. And, should a number of investors want to cash in at the same time, you may not be able to sell at all, or only able to sell a portion of your holdings. Second, since there's no open market, pricing the product can be an issue. You may not get a good price on either the buy or sell side. Third, these products may entail higher commissions and fees. Analyze carefully before investing. The lonter your horizon the better. A longer-term holding will lessen the impact of the commission. And this should be money you won't need in a hurry.
September 9, 2022
NewsThe IRS has announced that victims of Arizona severe storms occurring between July 17 and July 18, 2022, now have until November 15, 2022, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by the FEMA, the IRS announced that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by severe storms that reside or have a business in the Salt River Pima-Maricopa Indian Community 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 July 17, 2022, and before November 15, 2022, are postponed through November 15, 2022. This means individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, will now have until November 15, 2022, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief. The November 15, 2022, deadline also applies to the quarterly estimated tax payments, normally due on September 15, 2022, and to the quarterly payroll and excise tax returns normally due on August 1 and October 31, 2022. Businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2021 extensions run out on September 15, 2022, and calendar-year corporations whose 2021 extensions run out on October 17, 2022. Go to IRS Announces Relief for Arizona Severe Storms.
Tax accounting is often different from financial accounting--the inability to use a reserve for bad debts for tax purposes is the classica example. The IRS wants taxpayers to recognize income as soon as possible--financial accounting often takes the opposite approach. In Continuing Life Communities Thousand Oaks LLC, spieker CLC, LLC, Tax Matters Partner (T.C. Memo. 2022-31) the taxpayer deferred fees from residents in a continuing care community and recognized the income each year. The taxpayer cited the fact that the residence agreement accounted for the upfront fees that way in the residence agreement, and followed generally accepted accounting principles (GAAP) in recognizing when and howm much of these payments it reported on its returns. The Tax Court agreed with the taxpayer and allowed the method.
Tip of the DayDon't spend that student loan money yet . . . You may qualify for the $10,000 (or $20,000) student loan forgiveness (depending on your income), but don't spend the money just yet. First, this wasn't an act of Congress and the action could be challenged in the courts. Second, for Federal tax purposes the forgiveness should be tax free, but that's not true in all the states. At this point it looks like it would be taxable in 12 states. Finally, you may want to celebrate the windfall, but if you've still got significant student loans and/or other outstanding debt, resist the urge. Celebrate with a dinner and a movie. Then pay off credit card debt, other high-interest debt, or invest the money. If you're having problems getting parts for your 1976 Pinto, go for a new car, otherwise, spend the money more wisely.
September 8, 2022
NewsThe Treasury Inspector General for Tax Administration (TIGTA) performed an audit to assess the IRS's efforts to ensure corporate taxpayers' compliance with the net operating loss provisions relating to Form 1139. During the period March 27, 2020, to March 31, 2021, 17,537 taxpayers submitted Form 1139 involving carrybacks to cover 19,262 loss tax years. The IRS issued a total of $17.4 billion in tentative refunds to 12,119 of these taxpayers. Despite the large volume of Forms 1139 submitted, the business tax returns selected for examination represent a relatively low percentage of net operating loss tax years claimed on the Form 1139. From March 27, 2020, through July 26, 2021, the Small Business/Self-Employed Division selected a total of 12,760 Forms 1120, U.S. Corporation Income Tax Return, for examination of which 36 (less than 0.30 percent) involved a "loss" year claimed on the Form 1139. Further, the IRS is not assessing the potential risk these CARES Act provisions pose to tax administration in order to determine whether to adjust examination coverage.TIGTA reviewed eight Form 1120 examinations that the Small Business/Self-Employed Division closed and found the IRS examinations resulted in return adjustments on five cases (62.5 percent) that reduced the net operating loss that was carried back. Per the net operating loss provisions, Internal Revenue Code § 172, part of the tentative refunds issued in the five cases should have been recaptured. The examiner did not always take the steps to recapture the tentative refund issued to the taxpayer. TIGTA performed similar reviews of Large Business and International Division examination cases and did not find any exceptions. For the complete report, go to www.treasury.gov/tigta/auditreports/2022reports/202235049fr.pdf.
Tip of the DayInstalled cost . . . Some equipment is simple to price. You buy it, plug it in and begin working. Other equipment has to be installed. That can cost as much as the equipment, sometimes more. If that's the case you might want to make sure that the equipment will have a long service life and can be repaired in place.
September 7, 2022
NewsBeginning Sept. 25, the IRS will implement a new electronic fingerprinting process for e-file providers, requiring them to schedule an appointment with an IRS-authorized vendor for fingerprinting. There will be no charge for this service. Appointments can be scheduled by accessing the link located on the e-file application summary page. Each new principal and responsible official listed on a new e-file application, or added to an existing application needing fingerprints, must schedule an appointment with an authorized vendor. This link will only be visible to each principal and responsible official when the application is successfully submitted and fingerprints are required. Additional information about the new fingerprinting process can be found on the Become an Authorized e-file Provider webpage.
In an audit the Treasury Inspector General for Tax Administration (TIGTA) found that continued processing delays have prevented businesses from receiving pandemic relief benefits. The IRS did not begin processing claims for qualified Sick and Family Leave Credits and the Employee Retention Credit for 12 months and claims for Social Security Tax Deferral for 16 months after the pandemic relief legislation was enacted. This was due to a lack of updated programming and procedural guidance. A lack of training, erroneously suspended claims, and a lack of prioritization of claims contributed to additional delays processing claims. TIGTA identified additional concerns with the IRS’s processes to implement retroactive termination of the Employee Retention Credit. Specifically, the IRS does not have processes to verify a recovery startup business or effective controls to deny the Employee Retention Credit for non-recovery startup businesses. To qualify as a recovery startup business, generally, an employer had to begin operations after February 15, 2020, and have annual gross receipts that did not exceed $1 million over a certain three-taxable-year period. In addition, amended returns with Employee Retention Credit claims were not referred to Examination for review as required. TIGTA projected that 153 out of 209 amended returns with nonrefundablemployer credit claims that met the referral criteria were not referred to Examination. For the complete report, go to www.treasury.gov/tigta/auditreports/2022reports/202246059fr.pdf.
Tip of the DayTrade or business expense? . . . You can only deduct business that are related to your trade or business--and the law requires them to be ordinary and necessary. Expenses directly related to your business generally qualify. But business owners sometimes stray from the straight and narrow. Fred owns a machine shop, but has an interest in restoring antique airplanes. Even if the activity is in your business entity, the restoration work is likely a separate activity and you may have to show you intended to make a profit at the activity in order to deduct the expenses. Talk to your tax adviser about the activity. He may have suggestions on how to keep the expenses deductible.
September 6, 2022
NewsVictims of the water crisis In Mississippi thant began August 30, 2022, now have until February 15, 2023, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today. Following the recent disaster declaration issued by the FEMA, the IRS announced today that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by the water crisis that reside or have a business in Hinds county 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 August 30, 2022, and before February 15, 2023, are postponed through February 15, 2023. This means individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, will now have until February 15, 2023, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief. The February 15, 2023, deadline also applies to the quarterly estimated tax payment, normally due on September 15, 2022 and January 15, 2023, and the quarterly payroll and excise tax returns, normally due on October 31, 2022 and January 31, 2023. In addition, businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2021 extensions run out on September 15, 2022 and calendar-year corporations whose 2021 extensions run out on October 17, 2022. For more information, go to IRS Announces Tax Relief for Mississippi Water Crisis Victims.
Tip of the DayNo double dipping . . . The tax code usually, but not always, contains a prohibition against using the same expense twice. For example, you may be entitled to the American Opportunity Tax Credit (AOTC) for your son's college expenses. You may also be entitled to exclude earnings on a Sec. 529 plan. Assume you only have $4,000 of qualifying expenses and you use them to claim the AOTC. You can't use those expenses again to exclude earnings on distributions from a 429 plan. A similar situation occurs with payroll credits. If you claim a credit of $3,000 on a $40,000 payroll, only $37,000 of the payroll expense is deductible. Much the same rules applies to states credits. But be careful. If you had to reduce your payroll for a federal credit, you may be able to deduct the full payroll expense for federal purposes.
September 2, 2022
NewsThe IRS is advising business not to file Form 8996 if they are a qualified opportunity zone business. The form is only for qualified opportunity funds. The instructions for the the 2022 version of Form 8996 Qualified Opportunity Fund will make it clear that a qualified opportunity zone business should not file Form 8990.
Tip of the DayLimit your sales pitch . . . Your product or service may be light years ahead of the competition, but resist the urge to put in a laundry list of advantages in your sales pitch. Some professionals suggest limiting the list to the top 5. Unless you're addressing professional users (engineers, scientists, etc.) or experts, you'll lose the audience. Even if you're dealing with experts, there's no reason to go past 10 items.
September 1, 2022
NewsThe IRS has a number of policies and procedures to help ensure that taxpayers are afforded the right to designate an authorized representative to act on their behalf in a variety of tax matters. In addition, the IRS has a process to handle the review and disposition of taxpayer allegations of direct contact violations. The Treasury Inspector General for Tax Administration (TIGTA) did an audit to determine if the IRS was following required procedures. TIGTA found that while the majority of Field Collection employees appeared to be familiar with the direct contact provisions and fair tax collection practices, not all revenue officers are familiar with the requirements of the provisions. When a sample of revenue officers were presented a hypothetical situation involving a contact with a taxpayer, less than all answered correctly. For the complete report, go to www.treasury.gov/tigta/auditreports/2022reports/202230054fr.pdf.
Tip of the DayYou just uncovered an embezzlement . . . Now what do you do. If you suspect a substantial amount has been stolen, the best thing to do is talk to a lawyer or an accountant who knows how to handle such situations. Wrongly accusing an employee of theft could open you up to a lawsuit. And if the employee suspects that you suspect, he or she may cover their trail.
August 31, 2022
NewsWhat's a penalty and what's a tax? The question is not just an academic one. It can make a difference in many situations. In Kirgizia I. Grajales (U.S. Court of Appeals, Second Circuit) the taxpayer owed the 10 percent tax on early distributions from a qualified plan. The taxpayer argued that the "penalty" did not have written surpervisory approval and was thus invalid. The Appeals Court affirmed the Tax Court decision in holding that the 10 percent exaction was a tax and not a penalty and, as a result, did not need supervisory approval. The Court also noted that the bankruptcy cases the taxpayer relied on were not controlling and were limited to determining priority of claims in bankurpcy proceedings.
Tip of the DayIs that review honest? . . . Maybe, maybe not. The FTC has just brought action against one company for creating and posting fake reviews. Unless you know the company is honest, best to take them wih a grain of salt.
August 30, 2022
NewsThe IRS can offer a number of options if you can't pay your full liability. Everyone knows about the offer in compromise and installment agreement. But if you can't qualify for either of those, there's a third--currently noncollectible status or CNC. You can qualify for this there's little or no chance you can make any payments currently, but you may in the future. For example, your income would normally support your family, but you haven't been able to work for some time because of an injury. The IRS delay collection until your situation changes. In Robert J. Norberg and Debra L. Norberg (T.C. Memo. 2022-30) the taxpayer sought CNC status based on the excess of living expenses over income shown on his Form 433-A financial statement. The settlement officer, however, applied the allowable expenses for taxpayers based on local standards and determined the taxpayers could pay $62 per month. Thus, the taxpayers were not entitled to currently noncollection status. The Court found that, while the taxpayers had an opportunity to challenge the allowed living expenses, the taxpayers failed to meet their burden of showing they were entitled to a departure from the IRS amounts.
Tip of the DayEducation fringe benefit . . . The new tax law effectively eliminates miscellaneous itemized deductions for individual taxpayers. But employers can help employees with an education break. An employer that sets up a formal written plan can reimburse an employee up to $5,250 a year for education expenses before having to report any of it as income. The plan cannot be discriminatory in favor of highly compensated employees or owner-employees. Check the details with your tax advisor.
August 29, 2022
NewsIn Cory H. Smith (159 T.C. No. 3) the taxpayer entered into a closing agreement with the IRS under Sec. 7121 waiving his right to elect to exclude foreign earned income under SEc. 911(a) for the taxable years 2016–18. After filing his 2016 and 2017 returns without making the election, the taxpayer filed amended returns making the election for those years, and the IRS issued refunds in due course. He then made the election on his 2018 return. Consistent with the closing agreement, the IRS issued a notice of deficiency to him for the taxable years 2016–18 disallowing the elections under Sec. 911(a). The taxpayer petitioned the Tax Court for redetermination of the deficiencies. On competing Motions for Partial Summary Judgment, the parties dispute the validity of the taxpayer's closing agreement. The IRS asked to hold that the agreement is valid under Sec. 7121 and must be enforced. The taxpayer on the other hand, claimed the agreement is invalid because the IRS official who executed it--the Director, Treaty Administration, in the IRS Large Business and International Division — did not have the authority to do so. In the alternative, the taxpayer argued the closing agreement should have been set aside under Sec. 7121(b) because the IRS committed malfeasance by disclosing confidential taxpayer information under Sec. 6103 and because the IRS misrepresented material facts in the terms of the closing agreement. The Tax Court held the closing agreement is valid and enforceable and that the Director, Treaty Administration, had authority to execute the closing agreement on behalf of the IRS. In addition, the Court held the closing agreement could not be set aside under Sec. 7121(b) because the taxpayer failed to show malfeasance or misrepresentation of fact.
Tip of the DayLittle things count , , , Whether it's a product or a service, how the customer sees your service or product is important. One customer left a dealership with a new $50,000 car only to realize the gas tank was almost empty. Turned out it had two gallons in the tank. Another customer bought a new tool requiring batteries. After six months the battery door to the unit broke and couldn't be replaced. A patient was given a medical questionnaire that looked like a copy of a copy of a copy of a copy--all reproduced on a copier with low toner. And just because the defect doesn't affect the performance of the unit or service, it reflects poorly on the business.
August 26, 2022
NewsThe IRS has added Lee, Lincoln and Powell to the list of counties in Kentucky where victims of severe storms, flooding, landslides, and mudslides that began on July 26, 2022 can get tax relief. Individuals and households and taxpayers who have a business in Breathitt, Clay, Cumberland, Floyd, Johnson, Knott, Lee, Leslie, Letcher, Lincoln, Magoffin, Martin, Owsley, Perry, Pike, Powell, Whitley and Wolfe counties qualify for tax relief. For complete details go to IRS Announces Tax Relief for Kentucky Victims.
Tip of the DayPlan ahead if you need a loan . . . When you're in financial trouble is not the time to look for a loan. If you can get one it'll be at a higher rate. In some cases you may have to seek a speciality lender. Keep ahead of your business and watch your cash flow carefully. Not only will you get a better rate if you apply early, be aware that it can take several months to close.
August 25, 2022
NewsNotice 2022-36 provides relief for certain taxpayers from certain failure to file penalties and certain international information return (IIR) penalties with respect to tax returns for taxable years 2019 and 2020 that are filed on or before September 30, 2022. This notice also provides relief from certain information return penalties with respect to taxable year 2019 returns that were filed on or before August 1, 2020, and with respect to taxable year 2020 returns that were filed on or before August 1, 2021. The relevant penalties will be waived or, to the extent previously assessed, abated, refunded, or credited, as described in section 3.A of the notice. Situations where penalty relief does not apply are described in section 3.B of the notice. For Form 1040 returns the penalty is usually assessed at a rate of 5 percent per month with a maximum of 25 percent. The IRS is also taking an additional step to help those who paid these penalties already. Nearly 1.6 million taxpayers will automatically receive more than $1.2 billion in refunds or credits. Many of these payments will be completed by the end of September. Besides providing relief to both individuals and businesses impacted by the pandemic, this step is designed to allow the IRS to focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season. To qualify for this relief, any eligible income tax return must be filed on or before September 30, 2022.
Tip of the DayBack to school sales not just for kids . . . While parents may be shopping for school and college supplies, retailers and office supply stores don't prohibit small businesses from enjoying those sales. Not everything is discounted, so shop carefully, but you could pick up some bargains.
August 24, 2022
NewsIf you don't file a tax return, the IRS can file one for you. It's called a substitute for return (SFR). The IRS won't do that automatically. You'll get a request for the return first. In Shawn Stephen Salter (T.C. Memo. 2022-29) the IRS did create a substitute return and took the standard deduction. The Tax Court held that was all the taxpayer was entitled to since claiming itemized deductions is an election that can only be made on a return filed by the taxpayer. While the taxpayer claimed he filed a return electronically, he did not offer a copy of the return, or any proof it was filed electronically.
Tip of the DayDevices that reduce insurance premiums . . . You want to notify your insurance company if you add a room to your house, upgrade your kitchen, etc. You should also notify them if you get or improve a security system. Even the addition of a water sensor in the basement to an existing system could save money. Much the same is true for an commercial property. In a large property or a manufacturing facility you might consider using a consultant from the insurance company to advise on how to reduce risks that could save you money.
August 23, 2022
NewsThe Collection Due Process hearing provisions are designed to give taxpayers an opportunity for an independent review to ensure that the levy action that has been proposed or the Notice of Federal Tax Lien that has been filed is warranted and appropriate. The Treasury Inspector General for Treasury Administration (TIGTA) performed an audit of the system and, similar to prior audits, found incorrect Collection Statute Expiration Date (CSED) posting errors in 20 percent of taxpayer cases. For example, taxpayer accounts had CSED errors due to incorreclty input CSED suspension start and stop dates. In some cases the IRS incorrectly extended the time period allowing the IRS additional time to collect delinquent taxes. In other cases, the IRS incorrectly decreased the time to collect delinquent taxes. TIGTA recommended that the IRS should reinforce the existing procedures for Appeals personnel to ensure that the correct CSEDs are posted to taxpayer accounts. For the complete report, go to www.treasury.gov/tigta/auditreports/2022reports/202210043fr.pdf.
Tip of the DayLong-term projects riskier . . . That's generally been a given. Even if technology doesn't change, time can bring demographic shifts, changes in competition, etc. But for the last 30 years or more technological changes have been speeding up. That's adding a new, larger, element of risk. You've got to build in more risk to your capital analysis. While even short-term projects are riskier, ones more than 7 years or so out are of far more concern.
August 22, 2022
NewsIf you request a collection due process (CDP) hearing to settle your an outstanding tax liability and the settlement officer denies your request for relief, you can appeal to the Tax Court, but you can only get relief if you can show the settlement officer (SO) abused his or her discretion. In Luke J. Middleton (T.C. Memo. 2022-28) the IRS assessed a trust fund recovery penalty against a responsible person. The Court noted the taxpayer had a prior opportunity to challenge the underlying liability and thus could not do so in the CDP hearing. The taxpayer did not file the documents or tax returns requested by the SO before he could approve the installment agreement. The Tax Court found no abuse of discretion.
Tip of the DayBusiness interruption insurance . . . It's designed to replace lost income if you have a casualty such as a fire, hurricane, etc. Many business policies come with relatively small amounts. You may be able to increase it, but it's often not cheap. It's not designed to replace your revenue number, but more as a measure to keep ;you afloat in an emergency. Don't forget items like inventory, furniture and fixtures, etc, should be covered under the basic insurance policy. Talk to your insurance agent and check your coverage. Too little and you could be at risk in a disaster. too much and you're wasting money. Watch for exclusions in the policy.
August 19, 2022
NewsThe sale of investment property at a loss will result in a capital loss. But the sale of business property at a loss will result in an ordinary loss. In Edgardo L. Villanueva (T.C. Memo. 2022-27) the taxpayer sustained a loss from the disposition of a condominium he owned as a rental property. The taxpayer reported the date of the loss as August 2013, but a mortgage lender had foreclosed on the condo in May 2009 and the taxpayer lost possession on that date. Taxpayers are entitled to deduct losses sustained during the taxable year that were not compensated for by insurance or otherwise. Regulations under Section 165 provide that a loss is treated as sustained during the taxable year in which the loss occurs as evidenced by a closed and completed transaction and fixed by identifiable events occurring in such taxable year. A loss resulting from a foreclosure sale is typically sustained in the year in which the property is disposed of and the debt is discharged from the proceeds of the foreclosure sale. If the loss occurred in 2009, the taxpayer might have been able to carry the loss forward as a net operating loss (NOL). If that's the case the taxpayer must prove the existence of the NOL and that it was not absorbed in the intervening years. A taxpayer claiming an NOL deduction must file with his return a concise statement setting forth the amount of the [NOL] deduction claimed and all material and pertinent facts relative thereto, including a detailed schedule showing the computation of the [NOL] deduction. Here the taxpayer did not report the loss on an original or amended return so there was no loss to carry forward.
Tip of the Day10-year statute of limitations . . . That's how long you'll have to keep documentation related to PPP and EIDL loans as the result of a new bill just signed into law.
August 18, 2022
NewsThe IRS has added Cumberland County to the list of counties in Kentucky where victims of severe storms, flooding, landslides, and mudslides that began on July 26, 2022 can get tax relief. Individuals and households and taxpayers who have a business in Breathitt, Clay, Cumberland, Floyd, Johnson, Knott, Leslie, Letcher, Magoffin, Martin, Owsley, Perry, Pike, Whitley and Wolfe counties qualify for tax relief. For complete details go to IRS Announces Tax Relief for Kentucky Victims.
The IRS has released revised forms in the 941 series (941, 941-X, etc.). Many forms don't change that often, but to insure you're using the latest, go to IRS Forms and Publications to download the latest version.
Tip of the Day$85,000 bill holds up $30 million deal . . . The owner of a multi-unit catering establishment was getting ready to sell out for almost $30 million. But one week before the closing a former supplier claimed a $85,000 bill was unpaid, holding up the sale. Depending on the circumstances, this could be a small nuisance or an expensive headache. In this case it was a big headache because the business wasn't generating enough cash to cover the interest payments on a mortgage on the building. Between that and legal fees, taxes, etc. delays were costing the owner well over $5,000 per day. Plan ahead. Make sure there are no outstanding debts that could hold up a sale.
August 17, 2022
NewsPresident Biden has signed into law the Inflation Reduction Act of 2022.
Frivolous arguments will get you nowhere. In Jonah B. Addis (T.C. Memo. 2022-24) the taxpayer requested a collection due process (CDP) hearing to contest a $5,000 frivolous return penalty based upon a position he took on his delinquent tax return for 2014. On the return he reported zero income. In support of the income amount he submitted Form 4852, Substitute for Form W-2, Wage and Tax Statement showing zero income. The IRs had in its possession third-party forms showing some $42,000 of income. The IRS advised the taxpayer that if he did not correct the return it would assess a $5,000 penalty. When he failed to do so the IRS did assess the penalty. At the CDP hearing the settlement officer gave him several opportunities to abandonment the frivolous argument. When he failed to do so, the settlement officer sustained the penalty. The Tax Court held there was no abuse of discretion by the settlement officer.
Tip of the DayInterest rates on underpayments rise . . . In the first quarter of this year interest rates on underpayments for individuals and other noncorporate taxpayers were only 3 percent. For the final quarter of this year they're up to 6 percent. That's a big difference. Now if you're estimated tax payments are short for the first quarter of a year by $10,000, the penalty for the full year would be $600. At 3 percent, the cost may have been outweighed by earnings on the cash. In the current environment, that's unlikely to happen. You should pay closer attention to estimated payments and late payments.
August 16, 2022
NewsThe IRS announced (Rev. Rul. 2022-15)that interest rates will increase for the calendar quarter beginning Oct. 1, 2022. For individuals, the rate for overpayments and underpayments will be 6% per year, compounded daily, up from 5% for the quarter that began on July 1. Here is a complete list of the new rates:
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.
Tip of the DayGot a disaster plan? . . . That's a great start, but make sure you review and update it at least annually. In a year technology can change, your business can change, employee turnover, etc. And there can be new threats. After the review make sure to go over it with your employees. How formal or long the employee training takes will depend on a number of factors, but it'll go quick if the plan is written and communicated to the employees. Employees should have a copy of the plan at home since there's a strong possibility they won't be in the office when disaster strikes.
August 15, 2022
NewsTreasury Secretary Yellen reported directing the IRS not to use personnel hired with funds from the soon-to-be signed Deficit Reduction Act to increase the audit rate on small businesses and individuals below the $400,000 threshold above historic levels. Instead, focus should be on large corporations and high-net worth individuals.
Tip of the DayCharitable gifts . . . Many people want to leave a gift to charity in their will. If you owe the estate tax, the gift will reduce your taxable estate. But there's a good chance, with the current exemptions, you won't owe tax, even without making a gift. If that's the case a gift in your will won't save any taxes and you should consider making a gift during your lifetime. Depending on your tax bracket, the gift will save current taxes, with the result of more money in your estate. An outright gift works, but if you're worried about income, a charitable annuity can pay you current income, give you a tax deduction, and a gift to charity. Consult your tax advisor to see if this might work for you.
August 12, 2022
NewsIn order for an IRS penalty to be valid, the agent's immediate supervisor was provide written approval before the first formal written communication to the taxpayer of the penalty. In Oxbow Bend, LLC, Parkway South, LLC, Tax Matters Partner (T.C. Memo. 2022-23) the IRS examining agent indicated that she would recommend that a penalty should be applied to the underpayment during a telephone conference. In Court the taxpayer challenged the penalty claiming that the agent did not have supervisory approval when she mentioned the penalties. The Court noted that the law requires approval for the initial determination of a penalty assessment, not for a tentative proposal or hypothesis. The timeliness inquiry turned on the timing of the first "formal written communication" to the taxpayer against whom the penalties are being asserted. Although the agent mentioned the likelihood of penalties during the telephone conference, the first formal communication to the taxpayer of penalties, did not occur until two months after the agent's supervisor approved her recommendation to assert penalties against the taxpayer. The written approval of the penalty was thus timely.
Tip of the DayPer diem rate . . . Just like for autos and the standard mileage rate or actual expenses, if you incur travel expenses in your business you can use your actual expenses or the IRS per diem rate. The per diem rate covers lodging and meals and incidental expenses. You still have to keep a record of the date and time of travel and the business purpose, but you can forget about those receipts for meals and lodging (if you're self-employed, you must keep receipts of lodging). If you're audited and you used the per diem method, there won't be any squabble over the amount. The downside is that per diem rates aren't particularly generous. Hotel accomodates are unlikely to be luxurious. On the other hand, if you're frugal to begin with, you could come out ahead. The per diem rates are by locality--for example, New York City proper, Long Island, Albany, Catskills, etc., and can change by month. There's also a high-low method that uses only two rates. Boston, MA would have a high rate; Northampton, MA in the Berkshires would be low. Talk to your tax adviser before making a decision.
August 11, 2022
NewsThe IRS has announced that victims of severe storms and flooding in Missouri that began July 25, 2022, now have until November 15, 2022, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by FEMA, affected taxpayers in certain areas will receive tax relief. Individuals and households affected by severe storms and flooding that reside or have a business in the Independent City of St. Louis, Montgomery, St. Charles and St. Louis 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 July 25, 2022, and before November 15, 2022, are postponed through November 15, 2022. This means individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, will now have until November 15, 2022, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief. The November 15, 2022 deadline also applies to the quarterly estimated tax payment, normally due on September 15, 2022 and the quarterly payroll and excise tax returns, normally due on August 1 and October 31, 2022. In addition, businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2021 extensions run out on September. 15, 2022 and calendar-year corporations whose 2021 extensions run out on October. 17, 2022. Click on the link above for more information.
Tip of the DayInflation Reduction Act in House . . . The bill is currently in the House and is expected to pass shortly. While the bill provides more credits for electric vehicles by eliminating the manufacturers cap, it also provides a number of restrictions. Under the new rules there is a required "made in U.S.A." rule, a restriction on the price of qualifying vehicles and a limitation on the income of purchasers. But the elimination of the current rules will mean that many vehicles that may have qualified under prior law won't qualify under the new law. If you're planning on buying an electric vehicle, talk to the dealer to make sure you get the credit.
August 10, 2022
NewsThe Security Summit partners unveiled (IR-2022-147) a special new sample security plan designed to help tax professionals, especially those with smaller practices, protect their data and information. The special plan, called a Written Information Security Plan or WISP, is outlined in a 29-page document that's been worked on by members of the Security Summit, including tax professionals, software and industry partners, representatives from state tax groups and the IRS. Federal law requires all professional tax preparers to create and implement a data security plan. The Security Summit group – a public-private partnership between the IRS, states and the nation's tax industry – has noticed that some tax professionals continue to struggle with developing a written security plan. Click on the link above for more details and links to other resources.
IRS Tax Tip 2022-119 warns taxpayers that natural disasters provide criminals with an opportunity to prey on people trying to give money or other support to disaster victims. Scammers may solicit donations to fake charities. Criminals may also pose as federal agencies to dupe disaster victims trying to get disaster relief. Don't respond to a call asking for money or offering to help if you're the victim. Call the charity or federal or state agency directly. The same goes for websites and social media pages. Scammers can set up fake sites that sound like legitimate ones and may be just a letter or two off. If you're donating, don't give cash; pay by check or credit card. And don't give out personal information like social security numbers or bank account info, etc. For more information and links to resources, click on the link above.
Tip of the DaySelling a commercial property? . . . You want to get as much as you can for the building, shopping center, etc. Valuations for commercial property are based heavily on the income from the property. An extra dollar of income could mean $15 more for the property. Prepare well ahead for a sale by doing maintenance on the property including replacing carpets, painting, etc. Make sure the space is as leased as you can get it. Potential vacancies kill the value of a property so longer-term leases should improve the "cap rate", the multiplier put on the building's income. Quality and credit-rated tenants also improve the cap rate. Talk to a commercial broker for help well in advance of the sale.
August 9, 2022
NewsIRS disaster relief for victims of severe storms, flooding, landslides and mudslides beginning July 26, 2022, in Kentucky now include those with homes and businesses in the county of Whitley. Now the full list of counties where victims can secure relief include Breathitt, Clay, Floyd, Johnson, Knott, Leslie, Letcher, Magoffin, Martin, Owsley, Perry, Pike, Whitley and Wolfe. For complete details go to IRS Announces Tax Relief for Kentucky Victims.
The IRS is reminding (IR-2022-146) truckers who have registered, or are required to register, large trucks and buses that it's time to file Form 2290, Heavy Highway Vehicle Use Tax Return is due August 31, 2022. The IRS is encouraging the use of e-file.
Tip of the DayIncrease insurance deductible . . . Home prices have gone up significantly and so have the value of contents. Your parents probably had a $500 deductible on their homeowners policy. You probably have a $1,000 deductible. But even that is low in the current environment. Boosting the deductible to $2,500 can lower your premium by 10 percent or more. Insurance companies generally don't like small claims so filing a claim for $1,500 in damages will net you $500 after a $1,000 deductible and probably result in a jump in your premium. A second small claim could be a reason to drop you. You won't recover your savings overnight, but substantial claims on homeowner's policies aren't that frequent unless you have more than average risk factors.
August 8, 2022
NewsIRS disaster relief for victims of wildfires and straight-line winds and flooding, mudflows, and debris flows directly related to the wildfires beginning April 5, 2022, has been updated to include Los Alamos and Sandoval counties. In addition, the deadline to file various individual and business tax returns has been extended to September 30, 2022. The complete list of counties where businesses or individuals may claim relief now includes Colfax, Lincoln, Los Alamos, Mora, San Miguel, Sandoval and Valencia. For more details go to IRS Announces Tax Relief for New Mexico.
Tip of the DayConsolidate your debt? . . . You've either heard or considered the advice to cosolidate your credit card or other debt in a lower cost loan. It certainly makes sense on the surface, but whether it works out in practice or not can be another matter. Fist, while the interest rate and monthly payments will be lower if the net result is stretching out the term of the debt you could end up paying as much in interest. Second, if you've got that much trouble with your credit card debt, it's likely you'll start adding to it once again. If that's you're situaiton, While it can still make sense to consolidate, you should get some help to avoid a repeat.
August 5, 2022
NewsAt a collection due process or similar hearing, the settlement officer examines the case and documentation and decides, based upon a set of factors whether you qualify for certain relief. If the settlement officer rejects your request, your recourse in court is to show the settlement officer (SO) abused his or her discretion. In the great majority of cases if the settlement officer did his or her job, a court will find no abuse. In Thomas Rhea Hamilton and Edith Marie Palmer Hamilton (T.C. Memo. 2022-21) the Tax Court found that the settlement officer failed to give proper consideration to points the taxpayers raised during the hearing, which undermined each of the four grounds the SO had relied on to reject the taxpayer's relief. The Court also noted the administrative record compiled by the SO was deficient and the lack of time devoted to the case. Finally, the Court noted the willingness of the taxpayers to provide the requested information to the settlment officer. The Court found the SO's decision to uphold the NFTL filing was arbitrary and lacked a sound basis in fact or law.
Tip of the DayLook for a franchise? . . . There are thousands of them available, some great, some good, some not so good, and sme really bad. The FTC requires certain disclosures, but there are loopholes for almost every law. Just because they've been in business a while doesn't mean you're good to go. You can usually learn a lot from talking to existing franchisees, but not the ones on the franchisor's list of contacts. And don't ask one in the neighboring town. Chances are they don't want the competition. An on-line search will give you ones in a neighboring city, county or state. And find out their background before concluding the talk. If the owner has experience in the field (e.g., a mechanic whose father owned a repair shop and now operates a transmission franchise) or has management expertise is likely to do much better than one inexperienced at a business. And make sure your attorney reads the franchise agreement. There are usually a number of traps that could spell disaster.
August 4, 2022
NewsNotice 2022-33 extends the deadlines for amending a retirement plan or individual retirement arrangement to reflect certain provisions of Division O of the Further Consolidated Appropriations Act, 2020, known as the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and section 104 of Division M of the Further Consolidated Appropriations Act, 2020, known as the Bipartisan American Miners Act of 2019 (Miners Act), by modifying Notice 2020-68, and Notice 2020-86. In addition, this notice extends the deadline for amending a retirement plan to reflect the provisions of section 2203 of the Coronavirus Aid, Relief, and Economic Security Act.
The IRS announced that victims of a water shortage and health impact from unprecedented sargassum seagrass influx on the island of St. Croix, U.S. Virgin Islands beginning July 15, 2022, now have until November 15, 2022, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by FEMA, the IRS announced today that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by a water shortage and health impact from unprecedented sargassum seagrass influx that reside or have a business on the Island of St. Croix 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 July 15, 2022, and before November 15, 2022, are postponed through November 15, 2022.
Tip of the DayHigher interest rates may not be the only problem . . . Clearly interest rates on commercial loans have gone up. But now apparently some banks are tightening their lending standards in antipaction of an economic slowdown. If you haven't done so, you should evaluate your cash needs and plan for any loans now. Stricter standards could show up in other areas such as car loans, equipment leases, etc.
August 3, 2022
NewsThe IRS has announced that storm victims in parts of Kentucky now have until November 15, 2022, to file various individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by FEMA as qualifying for individual or public assistance. Currently, individuals and households that reside or have a business in Breathitt, Clay, Floyd, Johnson, Knott, Leslie, Letcher, Magoffin, Martin, Owsley, Perry, Pike and Wolfe counties in Kentucky qualify for tax relief. The same relief will be available to any other locality added later by FEMA. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on July 26, 2022. As a result, affected individuals and businesses will have until November 15, 2022, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, will now have until November 15, 2022, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief. The November 15, 2022 deadline also applies to quarterly estimated income tax payments due on September 15, 2022, and the quarterly payroll and excise tax returns normally due on August 1 and October 31, 2022. Businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2021 extensions run out on September 15, 2022 and calendar-year corporations whose 2021 extensions run out on October 17, 2022. In addition, penalties on payroll and excise tax deposits due on or after July 26 and before August 10, will be abated as long as the deposits are made by August 10, 2022. For more information, go to Kentucky Storm, Flooding Victims Eligible for Tax Relief.
Tip of the DayIndividuals taking on debt? . . . During the earlier portion of the pandemic many individuals hunkered down, saving by not eating out, not going to the movies or shows, etc. In fact the savings rate was the highest in years and consumer debt was falling. That's changing. Homeowners are spending on their homes--either ones they just purchased or ones that they've lived in for years. And it's starting to show up in the numbers for consumer debt. Credit card and installment debt is rising. While there may still room for expansion, spending on capital goods is likely to slow down at some point. There are even some signs that consumers are cutting back by buying cheaper brands, reducing discretionary spending, etc. Be alert to changes by your customers.
August 2, 2022
NewsThe Democrats have reached an agreement on a climate, tax, and "inflation reduction" bill. A final bill is still a ways off, but here are some tax highlights:
Tip of the Daychanging banks? . . . If you get hard copies of your statements, be sure to save them. If you don't, make sure you download any missing statements so you have at least four years' worth. Why? Once the account is closed you may have problems getting copies. While it's particularly important for business owners (even for nonbusiness accounts), it's good advice for anyone.
August 1, 2022
NewsThe IRS is aware that some payments made for 2021 tax returns have not been correctly applied to joint taxpayer accounts, and these taxpayers are receiving erroneous balance due notices (CP-14 notices) or notices showing the incorrect amount. Visit IRS.gov for information about who is affected, next steps and more details for tax professionals. This statement is also available in Spanish. Who is affected? Generally, these are payments made by the spouse (second taxpayer listed) on a married filing jointly return submitted through their Online Account. Some other taxpayers may also be affected outside of this group. No immediate action or phone call needed: Taxpayers who receive a notice but paid the tax they owed in full and on time, electronically or by check, should not respond to the notice at this time. The IRS is researching the matter and will provide an update as soon as possible. Taxpayers who paid only part of the tax reported due on their 2021 joint return, should pay the remaining balance or follow instructions on the notice to enter into an installment agreement or request additional collection alternatives. Taxpayers can ensure that their payment is on their account by checking Online Account under the SSN that made the payment. Note that any assessed penalties and interest will be automatically adjusted when the payment(s) are applied.
Revenue Procedure 2022-34 (IRB 2022-33) provides indexing adjustments required by statute for certain provisions under section 36B. Specifically, this revenue procedure updates the applicable percentage table used to calculate an individual's premium tax credit for taxable years beginning in calendar year 2023 and updates the required contribution percentage for plan years beginning after calendar year 2022.
Tip of the DayDo your homework before signing up . . . There's no surefire way to avoid scams. Even the biggest and most respected companies have been caught in scams. Fortunately most of them are minor. One smaller credit card processing company has been cited by the Federal Trade Commission for traplping small businesses with extra charges and surprise exit fees. Small businesses are always more vulnerable to such scams since they are unlikely to be able to research a vendor nor are they likely to complain when taken.
July 29, 2022
NewsDisallowed deductions by a C corporation can result in a dividend to the shareholders. But in Sherwin Community Painters Inc.; Robert Ward, Jr. and Swanette Triem Ward (T.C. Memo. 2022-19) the Tax Court held that a disallowed deduction did not result in a constructive dividend because there was no indication that the taqxpayers received an economic benefit from the disallowed expenses. (This is an unusual holding; in most cases the shareholders do indeed receive a benefit.) In a second issue the Tax Court held that tuition the business paid for a coding course for a family friend was not deductible because the company had no agreement that the individual would perform work for the company. As it turned out the individual did spend considerable time updating the company's website and he was not compensated for his efforts.
Tip of the DayTake a break . . . Do you know the rules on breaks for employees? For federal purposes, short breaks, such as a 15 minute coffee break in the morning and after noon are compensable (you can't deduct the time). On the other hand, a lunch break can reduce the employee's total time for the day. That's important for overtime purposes. But state rules are also important. You may or may not have to provide a lunch break (it could depend on the number of hours worked), and you may or may not have to provide morning and afternoon breaks. Check the rules in your state. This is often a touchy area for employees and getting it wrong could prove costly.
July 28, 2022
NewsTax Tip 2022-114 discusses how the IRS contacts a taxpayer. This is nothing new, but it's gained new importance in light of the scams going on involving the IRS. The Tax Tip also contains links to other IRS resources.
If you don't make a profit on an activity, the IRS can challenge the operation and disallow any deductions. As usual, it's more complicated than that and if you can show you intended to make a profit, you can deduct losses associated with the activity. In Jessica Walters (T.C. Memo. 2022-17) the taxpayers constructed "green homes" with the intention of developing other green properties and consulting in the field. The IRS challenged the activity because the taxpayer used the golf course associated with the development, registered cars in the name of the development company, had a phone line in the name of the business, but which was not advertised as the phone for the business, and the sign for the property had the taxpayer's name, not the company name. Certain personal items were also stored at the home. The Court looked at the nine factors normally used to evaluate whether an activity is engaged in for profit and sided with the taxpayer.
Tip of the DayWhat are your customers doing? . . . Many retailers are now dumping unsold merchandise. Thator ould affect manufacturers and distributors. You should keep in touch with your customers to determine if thean uptick in orders is the result of sales or that because that a visit to renire the contestant
July 27, 2022
NewsIn IRS News Release IR-2022-143 the IRS is warning tax professionals using cloud-based systems to store and prepare tax returns and information to make sure they use multi-factor authentication in light of recent attacks. Specifically, the it's urging people using cloud-based platforms to use multi-factor options like phone, text or tokens. This can avoid potential vulnerabilities with authentication done just through email, which is easier for identity thieves to access. The IRS is also warning about a specific kind of phishing email called spear phishing. Rather than the scattershot nature of general phishing emails, scammers take time to identify their victim and craft a more enticing phishing email known as a lure. Scammers often use spear phishing to target tax professionals. In a reoccurring and very successful scam, criminals posed as potential clients, exchanging several emails with tax professionals before following up with an attachment that they claimed was their tax information. This scam gained energy as many tax professionals worked remotely and communicated with clients over email versus in-person or over the telephone because of the pandemic. Once the tax pro clicks on the embedded URL and/or opens the attachment, malware secretly downloads onto their computers, giving thieves access to passwords to client accounts or remote access to the computers themselves. Go to the link above for additional information and links to resources.
The IRS has added Flathead to the list of counties in Montana affected by severe storm and flooding beginning June 10, 2022 where the IRS is offering tax relief. For additional information and the complete list, go to IRS announces Tax Relief for Montana Victims of Severe Storms and Flooding.
Tip of the DayOffice or home? . . . If you had employees working from home during the pandemic, more than a few may want to continue to do so. Should you let them? A lot depends on what they do and your type of business. Some employees could work just as well from a deserted island, as long as there's an internet connection. You've got to uncover what's best for you. Some studies have shown that work from home is actually more productive. And in some cases it may be the only way you'll be able to keep an employee. Child care is frequently the issue, but there can be others. It may be difficult to get people back in the office. Some employers have found a hybrid approach works. Work from home with a certain amount of time in the office each week or month. Working from home can save stress on employees and save the cost of maintaining as large an office. s
July 26, 2022
NewsThe payment of personal expenses by a business is not deductible. If the business is a C corporation, the amount disallowed is treated as a dividend to the shareholder(s). In Barry A. Hacker and Celeste Hacker (T.C. Memo. 2022-16) the personal expenses paid by their business was significant. In addition, the taxpayers were the sole shareholders of an S corporation and received distributions from the corporation in excess of basis, resulting in a capital gain. The Court also sustained the IRS finding that the taxpayers had unreported income, in part because of unreported capital gain on the sale of a rental property and another property. The Court sustained the fraud penalty for a portion of the underpayment and the accuracy-related penalty for the remaining portion of the underpayment.
Tip of the DayInflation about to peak? . . . That's what some professionals are saying. But calling the top, or bottom, of any trend is very difficult. And, while it may be true, there are a number of factors that will certainly continue to put pricing pressures on certain goods. The heat and the drought is taking a toll on food supplies and that's unlikely to reverse soon. While fuel prices have come down, they could still easily reverse direction. You should also keep in mind that prices can be very sticky on the downside. Unless manufacturers, distributors and retailers see slower demand along with reducd costs, prices are unlikely to pull back much.
July 25, 2022
NewsBeginning Aug. 15, the IRS will impose a moratorium on the Acceptance Agent program. The moratorium will last until summer 2023 and, when lifted, a notification of rescission will be issued. The moratorium will allow for significant modernization efforts resulting in a more efficient application process. The overall timeframe to process properly submitted applications will change from months to weeks. While in place, Form 13551, Application to Participate in the IRS Acceptance Agent Program, will not be accepted. To prepare for the moratorium, new and existing CAAs and AAs should take the following actions, if needed:
Tip of the DayStrategic partnerships . . . They can be a big help in business. The most obvious is two or more invdividuals buing into a business to share the risk, the financing, the work, etc. Other ones include two companies creating a partnership to develope a product, a manufacturer and a marketer coming together to market a product, etc. Some companies are great at developing products but have limited marketing skills and can't afford to buy them. Partnerships can produce financial results much greater than one company acting alone. But there's also a risk. It doesn't happen frequently, but enough to be cautious. You don't want your partner cheating you out of your rightful share. The first step is to talk to someone you can work with and who you believe you can trust. The second is don't reveal more information that you absolutely have to. You may be proud of that brilliant idea, but keep as much of the details to yourself. Third, and most importantly, hire a good lawyer who knows how to draft such agreements. This is not the time to go it alone or use an attorney whose skills lie in other areas.
July 22, 2022
NewsOne of the traps in a C corporation is excessive compensation of shareholders. The problem occurs because a dividend isn't deductible by the corporation while a salary is. In Clary Hood, Inc. (T.C. Memo. 2022-15) the taxpayer and his wife were the sole shareholders of the corporation which was in the construction business, specifically grading, land preparation, etc. Not unlike other companies in the construction business growth was irregular from 2000 on. The principal took a relatively modest salary between 2000 and 2012 but took a big increase in the years 2013 to 2016, ostensibly to compensate for earlier years. The company had an outside consulting firm perform an analysis to determine what the principal's compensation should be. The IRS challenged the amount in 2015 and 2016. The Court looked at the usual factors considered in such a case including the employee's qualifications; the nature, extent, and scope of the employee's work; the size and complexities of the business; a comparison of salaries paid with gross income and net income; the prevailing general economic conditions; comparison of salaries with distributions to stockholders; the prevailing rates of compensation for comparable positions in comparable concerns; and the salary policy of the taxpayer as to all employees. The Court denied a deduction for the full amount of the compensation. In addition, the IRS assessed an accuracy-related penalty for both years. The taxpayer was able to show that he relied in good faith on the advice of the accounting firm and the Court did not sustain the penalty. However, for the second year the taxpayer could not substantiate its reliance on the outside adviser.
Tip of the DaySwag bag . . . Celebrities receive them when attending events. More ordinary individuals often receive them for attending promotions, but theirs are worth far less. But unless there's an exemption, such gifts are taxable. Most of the time these gifts escape taxation. But that's not true if you provide gifts to empployees or independent contractors. For example to celebrate the opening of a new shoe store, the company gives out a 40-inch gaming monitor. The value of the monitor has to be included on the employee's W-2. Now change the facts. Madison Electronics has designed a new gaming monitor that sells for $600 and distributes one to each requesting employee to further test the unit and provide feedback. The value should not be taxable. Talk to your tax advisor. There are rules that allow you to provide benefits to employees tax free.
July 21, 2022
NewsThe Joint Committee On Taxation has released Present Law and Background Relating to Tax Incentives for Residential Real Estate (JCX-16-22). The first part of this document describes the tax provisions that offer incentives for homeownership. The second part describes the tax provisions that offer incentives for rental housing. The third part provides a discussion of the economic incentives and data related to homeownership. The fourth part provides a discussion of the economic incentives and data related to rental housing.
Tip of the DayLogs or diaries are often important to substantiate time spent, where you were or the reason for travel. If you have rental properties your losses are limited to $25,000 (phased out) unless you are a "real estate professional". In order to meet that criteria you have to show you spent more than 750 hours and more than half of your working time in real estate. That's nearly impossible if you have a full-time job outside the profession. (A 40-hour workweek translates to about 2,000 hours per year.) In Zane W. Penley et ux. (T.C. Memo. 2017-65) the taxpayer had a full-time job and worked on his own rental properties. He offered as substantiation for his time working on his properties a monthly calendar that contained a brief description of the work, an estimated of the hours worked and the miles driven to the property. The Court noted the calendar exaggerated the time spent on real estate activitiesd. The Court noted to accumulate those hours he would have had to work 10-14 hours each day on the weekend and an additional 4-6 hours most weekdays. The Court found the calendar untrustworthy. The Cour also noted virtually all of the entries were rounded to the nearest hour or half-hour, did not specify a start or end time for the work, included the time spent driving to and from the property, and did not separate out any time for meals or other breaks. Moreover the taxpayers did not reconcile the hours with the activity. The Court found the taxpayers failed to substantiate the time spent on real estate activities.
July 20, 2022
NewsTrafficking in medical marijuana products may be legal on the state level, but it's still not legal for federal purposes. For federal tax purposes no deduction is allowed for expenses related to the business of trafficking in a controlled substance. In John D. Lord and Belinda Lord (T.C. Memo. 2022-14) the taxpayers were partners in an LLC and shareholders in an S corporation that cultivated, processed and distributed medical marijuana and related products. The sole issue for consideration was whether tax depreciation methods for inventory production assets can be used under either Section 263A or Section 471 when Section 280E (the one that prohibits deductions related to a controlled substance) is applied. (Cost of Goods Sold is not a deduction but is substracted from gross receipts. The Court noted that it previously held that Sec. 167 (depreciation) deductions are unavailable to a business engaged in a controlled substance. Here the business included the depreciation deduction in its cost of goods sold. The Court held that the depreciation deduction could not be used.
Tip of the DayRight to audit . . . You hire an independent contractor for consulting work and agree to reimburse him for expenses including meals, lodging, equipment rentals, subcontractors, etc. If the contract is substantial, make sure you include a right to audit his expenses. Contractors have been known to pad charges that should be legitimately passed through without a markup. Similarly, if you're a tenant in a building you should also have the right to review building cost data if a share of the expenses are being passed through on your lease.
July 19, 2022
NewsYou can challenge a notice of determination by the IRS, but if you fail to do so you generally may not bring up a challenge to the underlying liabilities at a collection due process hearing. In Mohammad A. Kazmi (T.C. Memo. 2022-13) the IRS argued the petitioner was prohibited from now challenging his underlying liabilities because he failed to appeal the earlier Letter 1153, which constituted an opportunity to dispute them under Section 6330(c)(2)(B). The Court found the settlement officer (SO) did not abuse his discretion when sustaining the collection action. He verified the letter was mailed, that the petitioner was a responsible person for purposes of the trust fund recovery penalty (TFRP), and that the penalty was properly approved by an IRS supervisor.
Tip of the DayEquipment trade-ins . . . The only like-kind exchanges that now defer gain on a disposition of property are those involving real estate. Trade-in that truck for a new one? You'll have to recognize gain just as if you sold it. That means there's no longer any tax incentive to trade-in equipment. You may get a better deal from the dealer or another party or you may just want to avoid the problems associated with selling the equipment on your own. Those could still be valid reasons. And, in some states you may get a break on the sales tax. While you will have to recognize any gain, you should be eligible to write off the cost of the new truck or other equipment in the first year using Sec. 179 or bonus depreciation.
July 18, 2022
NewsThe IRS announced (IR-2022-139) a revised set of frequently asked questions for the 2021 Child Tax Credit. The revised list can be found in Fact Sheet 2022-32>.
Certain charitable contributions require enhanced reporting with the tax return. And there's not a lot of leeway in sustaining the deduction. In Corning Place Ohio, LLC, Corning Place Ohio Investment, LLC, Tax Matters Partner (T.C. Memo. 2022-12) the IRS denied the taxpayer a charitable conservation easement deduction becausde the easement deed failed to protect the conservation purpose in perpetity, the appraisal and baseline documentation failed to meed the substantiation requirements and because the taxpayer did not pay the $500 filing fee specified in Section 170(f)(13). The IRS sought summary judgment. The Court held that there was enough of an issued that summary judgment should be denied and case should be examined in a full trial.
Tip of the DayMarket is down . . . That's not new information. But if you've got stocks in your IRA and it makes sense to convert some of your IRA to a Roth, now may be the time to do it. You'll have to pay tax on the distribution, so the lower the stock price the more bang you'll get for your bucks. You've got to be fairly confident that the stocks you pick are near the bottom. Talk to your financial advisor about the strategy. Making the conversion doesn't make sense for everyone.
July 15, 2022
NewsCan you rely on what an IRS agent or settlement officer says? Well in the case of Scott Nicholas Shaddix (T.C. Memo. 2022-11) the first settlement officer told the taxpayer he could not challenge his liability in a collection due process hearing. That advice was followed up by a second settlement officer who told them the same thing. While that may generally be true, but not in this case. The Tax Court decided that remand the case to the IRS Appeals Office to determine if the taxpayer can challenge his liability.
Tip of the DayEarly distributions from SIMPLE plans . . . SIMPLE plans are just that; simple. They allow employees to defer up to $14,000 (2022 amount) to a special IRA. The amount deferred escapes current income tax (but not FICA or medicare taxes). Employees age 50 and older may make annual "catch-up" contributions. And Most of the IRA rules apply. Thus, unlike a 401(k) plan you can't borrow from a SIMPLE. Distributions before age 59-1/2 are subject to a 10% penalty, unless one of the exceptions applies. There's a trap here. Distributions during the first two years of participation in a SIMPLE plan are subject to a 25% (instead of 10%) penalty. That includes rollovers from a SIMPLE IRA to a non-SIMPLE IRA.
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