News and Tip of the Day


Small Business Taxes & ManagementTM--Copyright 2022, A/N Group, Inc.

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August 8, 2022

News

IRS 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 Day

Consolidate 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

News

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 Day

Look 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

News

Notice 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 Day

Higher 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

News

The 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 Day

Individuals 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

News

The 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 Day

changing 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

News

The 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 Day

Do 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

News

Disallowed 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 Day

Take 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

News

Tax 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 Day

What 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

News

In 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 Day

Office 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

News

The 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 Day

Inflation 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

News

Beginning 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 Day

Strategic 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

News

One 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 Day

Swag 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

News

The 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 Day

Logs 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

News

Trafficking 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 Day

Right 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

News

You 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 Day

Equipment 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

News

The 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 Day

Market 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

News

Can 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 Day

Early 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.

 

July 14, 2022

News

While the taxability of alimony may no longer be an issue, there will still be plenty of tax cases around who can claim a child for various credits. In James Lee Hicks, Jr. (T.C. Memo. 2022-10) the taxpayer had two children who lived with the taxpayer's partner. There was an agreement in place, but the state court issued an order that allowed the taxpayer to claim both children each year. The taxpayer filed claiming both children for the various tax purposes, but did not attach Form 8332 to the return. The Tax Court held the children were not the taxpayer's qualifying children, but looked to the order of the state court and held it qualified as a written declaration satisfying the requirement.

Tip of the Day

Contemporaneous records . . . The IRS and the courts give more value to diary entries, etc. made near the time of the action. For example, a car log entry regular made at the time of the trip has more value than one made at the end of the week and much more value than one made at the end of the month. The IRS and the courts can usually spot a log you made the night before you saw the IRS agent. But the IRS and courts also look at other aspects such as do you regularly keep such records. A single entry in your diary for a six-month period showing the detail of a certain transaction carries less weight than if you made regular entries. Finally, sometimes a well-kept diary or log can substitute for missing receipts. But there are some areas of tax law where strict recordkeeping rules won't allow that, e.g., in the case of travel and entertainment receipts, charitable contributions, etc. The law requires a receipt and the neither the IRS nor the courts can waive that rule.

 

July 13, 2022

News

The IRS is hiring. It's announced (IR-2022-136) that it is looking for 470 Revenue Agents for the Small Business Self Employed (SB/SE) division. Base pay ranges from $31,083 to $68,299. You'll generally need 30 semester hours in accounting to qualify. For more information, click on the link above.

Tip of the Day

Home market slowing down? . . . It may be at or near a peak. There are some signs. Some deals are falling through. That could be becuase the buyers can't secure an affordable mortgage, the house doesn't appraise for the asking price, or other potential reasons. Prices have shot up, but a home at the current price was more affordable 6 months ago when interest rates were lower. Some hot markets are already definitely cooling. The takeaway here is that you should be more cautious, particularly if you bumping up against constraints. And unless you're going to have a substantial amount of cash left after closing, don't skip the inspection. The cost of repairs have shot up and sellers are now getting comfortable with putting a house on the market that has faults. Review your finances carefully. Not acquainted with finances. Talk to a CPA or real estate professional.

 

July 12, 2022

News

The IRS has announced that the counties of Sweet Grass, Treasure and Yellowstone have been added to those in Montana where victims of a severe storm and flooding that began June 10, 2022 qualify for tax relief. Individuals and businesses affected now have until October 17, 2022 to file various individual and business tax returns and make tax payments. For a complet list of the counties affected and the relief available, go to IRS Announces Tax Relief for Montana Severe Storm and Flooding Victims.

Tip of the Day

Leave renegotiating room . . . With prices skyrocketing on many products and services you might want to sign a longer-term contract to lock in current rates. But that could backfire on some items. Some prices have recently fallen sharply recently. While a vendor is unlikely to completely undo a contract (you can try inserting language), you might try negotiating a clause tha allows for a price adjustment if prices fall from the contracted rate by more than a certain percentage. It may be a middle ground that both parties can agree on.

 

July 11, 2022

News

Revenue Procedure 2022-32 provides a simplified method for certain estates to obtain an extension of time under Sec. 301.9100-3 to file a return on or before the fifth anniversary of the decedent's death to elect portability of the deceased spousal unused exclusion (DSUE) amount pursuant to Sec. 2010(c)(5)(A). This revenue procedure applies to estates that are not normally required to file an estate tax return because the value of the gross estate and adjusted taxable gifts is under the filing threshold in Sec. 6018(a).

Tip of the Day

Need cash for a closing? . . . If your house has to close before you have enough money to buy a new property, You could take a distribution from your IRA, but if you want to avoid paying tax (and a possible penalty) on the distribution you've got to return the money within 60 days. That may or may not give4 you enough time. And you don't want to miss the deadline. Another option is a collateralized loan. If you've got a significant portfolio, talk to your broker. You may be able to secure a short-term loan at a decent rate very quickly.

 

July 8, 2022

News

The IRS announced it will soon transition all e-Services tools to a new sign-in system. Existing users don’t need to take any action at this time. E-Services users with an active IRS username may continue to sign in after the transition. More details will be issued. The transition affects the following MeF applications:

You can find out more about this transition by registering for the following webinar: www.webcaster4.com/Webcast/Page/1148/45798 on Tuesday July 19, 2022 at 2:00 p.m. Eastern. The Webinar will discuss improved access to IRS online services, the IRS new identity verification and authentication platform, registration overview, etc.

Tip of the Day

Changing banks? . . . You might be happy to switch to a new bank leaving behind the problems you had with the old one. But don't do so too quickly. No matter how diligent you are you're likely to miss informing some customers or vendors of the switchd which means you some customers might either try and send funds to the old account or vendors on automatic pay might try to pull money from the old account. The smart move is to make every effort to inform customers or vendors of the switch, but keep the old account open for a while to pick up the ones you missed. How long will depend on how many outsiders you deal and how closely you deal with them. If you've got a limited number and you deal with them regularly, it shouldn't be long.

 

July 7, 2022

News

Victims of severe storms, tornadoes and flooding in Oklahoma that began May 2, 2022, now have until September 1, 2022, to file various individual and business tax returns and make tax payments, the IRS reported. Following the recent disaster declaration issued by FEMA, the IRS announced that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by severe storms, tornadoes and flooding that reside or have a business in Adair, Cherokee, Muskogee, Okmulgee, Pottawatomie, Seminole, and Tulsa counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 2, 2022, and before September 1, 2022, are postponed through September 1, 2022. This includes the quarterly estimated tax payment, normally due on June 15, and the quarterly payroll and excise tax returns, normally due on Auust. 1. It also includes the calendar-year 2021 return for tax-exempt organizations, normally due on May 16, 2022. Penalties on payroll and excise tax deposits due on or after May 2, 2022, and before May 17, 2022, will be abated as long as the tax deposits were made by May 17, 2022. If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty. For information on services currently available, visit the IRS operations and services page at IRS.gov/coronavirus. For more information, go to IRS Announces Tax Relief for Oklahoma Storm Victims.

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.

 

July 6, 2022

News

Victims of a severe storm and flooding in Montana that began June 10, 2022, now have until October 17, 2022, to file various individual and business tax returns and make tax payments, the IRS reported.. Following the recent disaster declaration issued by the Federal Emergency Management Agency, the IRS announced today that 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 Carbon, Park and Stillwater counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after June 10, 2022, and before October 17, 2022, are postponed through October 17, 2022. This includes quarterly estimated tax payments normally due on June 15 and Sept. 15. It also includes quarterly payroll and excise tax returns normally due on Aug. 1. Also included are calendar-year 2021 business returns that had a valid extension, due to run out on September 15. Penalties on payroll and excise tax deposits due on or after June 10, 2022, and before June 27, 2022, will be abated as long as the tax deposits were made by June 27, 2022. For more information, go to IRS Announces Tax Relief for Montana Victimsd.

Tip of the Day

Recession or no recession? . . . Signs are definitely pointing to one now. Demand is slipping and demand for workers appears to be easing. This could be trouble. The Fed is still committed to slowing inflation. They may decide that recession is the lesser of two evils. It's too early to stock up on food and convert your assets to gold, but business owners might want to reconsider expansion projects.

 

July 5, 2022

News

Many taxpayers claim a deduction for business auto use, and for meals and lodging away from home but have such expenses disallowed by the IRS for inadequate substantiation. (Note. This case was decided under prior law when employee business expenses were deductible.) In James P. Harwood and Connie J. Harwood (T.C. Memo. 2022-8) the taxpayer was a steamfitter who traveled to job sites and deducted vehicle expenses and expenses related to overnight stays. The Court found that he adequately substantiated a portion of his vehicle and other expenses using his log, but also found discrepancies and only allowed a portion of his mileage. The Court took pains to go into detail on which of his business expenses were allocable to various years and jobs and which expenses constituted commuting expenses. Finally, the Court noted that some of his employers had a policy of reimbursing his expenses, at least in part. The Court reduced any valid expenses by the amount that could have been reimbursed. The Court allowed a deduction for any valid expenses that exceeded an amount that could have been reimbursed.

Tip of the Day

90-Day wonder? . . . Some new hires have always signed on, tried the job for a couple of weeks and then bailed for another offer. But it's happening a lot more frequently in the current job market. Some reports have shown that if an employee stays on board for about three months there's a much higher probability they'll stick around on a long-term basis. There's nothing firm on the three-month breakpoint, but that's a good guide. Some businesses will experience shorter breakpoints. After meeting the hurdle how long will an employee stay? That depends on the type of business and the job. The takeaway here is that you should be careful to make the employee welcome during the first couple of months. It could really pay off in the long run.

 

July 1, 2022

News

There's no denying that substantiating your expenses is critical to securing a deduction. In fact, most tax cases where expenses are disallowed turn on substantiation, not whether the expense is deductible. And, while substantiation is always important, it becomes critical if your return is almost sure to trigger an audit. In Larry T. Williams (T.C. Memo. 2022-7) the taxpayer was a consultant for a business. He reported gross business income of $174,956 and business expenses of $174,829, which produced a taxable income of $127. The taxpayer's business expenses included, inter alia, $73,651 of travel expenses, $43,117 of car and truck expenses, $28,689 of "other" expenses, $7,255 of supplies, and $6,322 of meal and entertainment expenses. The IRS disallowed the deductions for lack of substantiation and the Tax Court sustained the IRS determination. Despite the taxpayer's frivolous or groundless positions taken, the Court declined to side with the IRS in imposing a Sec. 6673 penalty. but warned the taxpayer it was unlikely to be as lenient in the future should he press such arguments again.

Tip of the Day

Watch your spending . . . That's always good advice. Maybe more so now that many experts see recession on the horizon. Financial professionals are frequently asked "how come we're not richer?" Obviously making more money is one answer, but often spending is as large a factor. Some statistics show couples making $200,000 per year may be living paycheck to paycheck. Being cautious with your money can help more than you might imagine. Avoiding a loaded car with a European pedigree can save thousands per year in cost plus a like amount in maintenance and insurance. If you're big on entertaining you can throw a few less parties. Working from home? Driving to pick up a $5 coffee is expensive. The IRS standard mileage rate is now 62.5 cents per mile. And the IRS isn't know for being generous. And consider those subscriptions you don't really use. That doesn't mean you can't eat out or take that summer vacation. Just reexamine your spending and and setting priorities.

 

June 30, 2022

News

Beginning September 25, 2022, the IRS will implement a new electronic fingerprinting process for e-file applicants. Individuals will be required to use the IRS authorized vendor for fingerprinting. 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 the IRS authorized vendor. The cutoff date to mail paper fingerprint cards (Form FD-258) to the IRS is August 15, 2022. Fingerprint cards must be postmarked by August 15, 2022, and the application must be submitted prior to mailing the fingerprint cards. For more information, go to Become and Authorized E-file Provider.

Notice 2022-31 provides guidance regarding the changes made by section 9707 of the American Rescue Plan Act of 2021 (the ARP), to the election of alternative minimum funding standards under Section 430(m) of the Code for a defined benefit pension plan that is a community newspapers' plan or any other plan that is sponsored by an eligible newspaper plan sponsor.

Tip of the Day

Distribute securities from your IRA? . . . Can you distribute assets such as securities out of your IRA instead of selling them and then distributing the cash. It's certainly doable. It'll be a taxable transaction and the stocks or bonds will be valued at market on the day of the distribution. Your basis in the securities will be the same--the market value on the day of distribution. But while you can do it, should you? You're going to have to be careful to document the value of the securities, particularly if you intend to hold them in your own name. The last thing you want is for the IRS to challenge the value (and, therefore, the distribution) some years down the road. And you could have a problem if your IRA contains an illiquid asset such as a rental property. The value could easily be challenged by the IRS.

 

June 29, 2022

News

Sellers of closely held C corporations can face a large tax liability if they had substantial built-in gains. Promoters offered a solution known as a "Midco" transactions. The key to the general approach was an "intermediary company" affiliated with the promoter--typically a shell company, often organized offshore—would buy the shares of the target company. The target's cash would transit through the Midco to the selling shareholders. After acquiring the target's embedded tax liability, the Midco would engage in a sham transaction purporting to offset the target's realized gains and eliminate the corporate-level tax. The promoter and the target's shareholders would agree to split the dollar value of the corporate tax thus avoided. The promoter would keep as its fee a negotiated percentage of the avoided corporate tax. The target's shareholders would keep the balance of the avoided corporate tax as a premium above the target's true net asset value (i.e., assets net of accrued tax liability). In Norma L. Slone, Transferee, et al (T.C. Memo. 2022-6) the taxpayers sold a corporation using this method. After the transaction there were no assets left in the corporation that would be liable for the tax and the IRS issued notices of liability for the taxpayers as transferees. In the original Tax Court cases the Court uled that petitioners were not liable as transferees on the theory that they and their advisers did not have actual or constructive knowledge of the results of the transaction. The Ninth Circuit concluded the taxpayers were at the very least on constructive notice that the entire scheme had no purpose other than tax avoidance. The Ninth Circuit concluded the transfer was a constructively fraudulent transfer under Arizona law.

Tip of the Day

Fraud and age . . . The common thinking has been that senior citizens are more likely to be taken in by fraud than younger individuals. However, a recent FTC report found that people ages 20-29 reported losing money to fraud more often than people ages 80 and over. While younger people lost money 41 percent of the time they experienced fraud, older adults lost money only 17 percent of the time. But when older people did lose money, they lost a median of $1,500, or three times the median amount younger people lost. There could be a number of reasons for the lower rate among seniors of that age, but it seems surprising that young adults didn't fare better.

 

June 28, 2022

News

REG-103975-08 proposes to amend existing regulations issued under Section 2053. The proposed regulations provide guidance on the proper use of present-value principles in determining the amount deductible by an estate for funeral expenses, administration expenses, and certain claims against the estate. In addition, the proposed regulations provide guidance on the deductibility of interest expense accruing on tax and penalties owed by an estate, and interest expense accruing on certain loan obligations incurred by an estate. The proposed regulations also amend and clarify the requirements for substantiating the value of a claim against an estate that is deductible in certain cases. Finally, the proposed regulations provide guidance on the deductibility of amounts paid under a decedent's personal guarantee. The proposed regulations will affect estates of decedents seeking to deduct funeral expenses, administration expenses, and/or certain claims against the estate under Section 2053. This document also provides a notice of a public hearing on these proposed regulations.

The IRS announced that it has prescribed tax rates for 121 taxable substances that are subject to the Superfund chemical excise tax imposed by Section 4671(a) of the Code. Taxable substances are those substances listed in either Section 4672(a)(3) of the Code or Notice 2021-66. Substances may be added or removed from the list of taxable substances at a later date. The rates will be included in the instructions to Form 6627, Environmental Taxes, and under Recent Developments for Form 6627, Environmental Taxes. For more information, see IR-2022-132 and IR-2022-131.

Tip of the Day

Filing status . . . If you're single and get married before the end of the year you're considered married for the whole year. But what if you're married and yur spouse dies? For the year of your spouse's death you're considered married for the entire year and you can file as married, joint. For example, Fred dies in March and Sue doesn't remarry. She can file as married joint for the entire year. That's important because the rates for single are much less advantageous than for married, joint. You may want to take advantage of that by accelerating income into that year while deferring deductions. The rules are different if the surviving spouse has dependent children. They may be able to file as qualifying widow(er) for two years after the spouse's death. The rates are the same as married, joint and better than head-of-household.

 

June 27, 2022

News

In Michael D. Brown (158 T.C. No. 9) the taxpayer had a large unpaid tax liability. The IRS issued a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing. The taxpayer timely requested a collection due process (CDP) hearing. In April 2018, at the outset of the CDP hearing, the taxpayer submitted an offer-in-compromise (OIC). The IRS processed the OIC and forwarded it to a collection specialist for review. In November 2018 the collection specialist informed the taxpayer that his file had been closed and that the offer was being returned to him because "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted." During the CDP hearing the taxpayer urged the IRS to overturn that decision. The IRS concluded that the OIC was correctly returned and proceeded to close the CDP case. In August 2020 the IRS issued a notice of determination, and the taxpayer timely petitioned to the Tax Court. The taxpayer argued the OIC was "deemed accepted" by the IRS (Sec. 7122(l)). That Section provides an offer is deemed accepted if it is not rejected by the IRS before 24 months after the date of the submission of the offer. The taxpayer argued the rejection occurred 27 months after his OIC was submitted when the IRS issued the notice of determination. The IRS contended the rejection occurred 7 monhts after the OIC was submitted, when the collection specialist returned the OIC to the taxpayer and closed the file on his offer. The Tax Court held the OIC was rejected in November 2018, when the collection specialist closed the file and returned the OIC to the taxpayer. Because the OIC was "rejected by the Secretary" within 24 months of submission, it was not deemed accepted. The Court also held the time during which the IRS Appeals Office in a CDP case reviews the return of an OIC is not included as part of the 24-month "deemed acceptance" period.

Tip of the Day

Inherited an IRA? . . . If it's from your spouse you can generally treat it the same as your own. But if the IRA is from anyone else, many of the rules are different than if it were your own. First, you'll have to open an new IRA and it'll be always be designated an inherited IRA. You can't make contributions to it. Even if you're less than 59-1/2 years old you can take distributions without a penalty. And you can't do rollovers. Money distributed out of the account to you is fully taxable. Only trustee-to-trustee distributions are allowed. And there are special rules for required distributions.

 

June 24, 2022

News

The IRS announced (IR-2022-130) that more forms can now be amended electronically. These include corrections to the Form 1040-NR, U.S. Nonresident Alien Income Tax Return and Forms 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico) and Forms 1040-PR, Self-Employment Tax Return--Puerto Rico. Additionally, a new, electronic checkbox has been added for Forms 1040/1040-SR, 1040-NR and 1040-SS/1040-PR to indicate that a superseding return is being filed electronically. A superseded return is one that is filed after the originally filed return but submitted before the due date, including extensions. Taxpayers can also amend their return electronically if there is change to their filing status or to add a dependent who was previously claimed on another return. About 3 million Forms 1040-X are filed by taxpayers each year. Taxpayers can still use the Where's My Amended Return? online tool to check the status of their electronically-filed Form 1040-X. Forms 1040 and 1040-SR can still be amended electronically for tax years 2019, 2020 and 2021 along with amended Form 1040-NR and corrected Forms 1040-SS and Form 1040-PR for tax year 2021. In general, taxpayers still have the option to submit a paper version of the Form 1040-X and should follow the instructions for preparing and submitting the paper form.

Tip of the Day

All cash deals close fast . . . Buying a house with all cash may make your offer more attractive, but be careful you're not stepping into quicksand. When you get a mortgage the lender will require an appraisal, inspections, all permits in order, etc. That's not the case with an all cash deal. Those bank "stumbling blocks" are there to protect the bank--but they protect you too. Paying cash can be relatively safe if you're a heavy-duty do-it-yourselfer and know your way around houses. The same goes for buying a business. Striking fast can allow you to grab a business cheap. For example, when an owner or his heirs need to sell. But again, the more you know the safer you'll be. If you know the business well, for example the seller is a competitor in the same town, the risk may be low. But if you're venturing into a different field, you're a first-time owner, etc. get good advice before signing.

 

June 23, 2022

News

The National Taxpayer Advocate released her statutorily mandated midyear report to Congress. It expresses concern about continuing delays in the processing of paper-filed tax returns and the consequent impact on taxpayer refunds. At the end of May, the agency had a backlog of 21.3 million unprocessed paper tax returns, an increase of 1.3 million over the same time last year. While some 90 percent of individual taxpayers e-file their returns, that still leaves a significant number of paper-filed returns. Before the pandemic, the IRS typically delivered refunds to paper-filers within four to six weeks. Over the past year, refund delays on paper-filed returns have generally exceeded six months, with delays of 10 months or more common for many taxpayers. The report says the IRS has failed to make progress in eliminating its paper backlog because its pace of processing paper tax returns has not kept up with new receipts During the month of May, the IRS processed an average of about 205,000 individual income tax returns (Forms 1040) per week. Its Form 1040 backlog at the end of May stood at 8.2 million, with millions more paper tax returns not yet classified or expected to arrive before the extended filing deadline of October 15. The report says the IRS would have to process well over 500,000 Forms 1040 per week--more than double its current pace--to eliminate the backlog this year. Through May 21, the IRS processed 5 million taxpayer responses to proposed adjustments. It took an average of 251 days to do so--more than eight months. That is more than triple the processing time of 74 days in fiscal year 2019, the most recent pre-pandemic year. There are currently over 336,000 taxpayers who could not file their returns or receive their refunds because identity thieves had already filed a return using their identifying information. These taxpayers must submit affidavits and other documentation to substantiate their identities. They now generally must wait at least a year to receive their refunds.

Tip of the Day

Residency audits? . . . As a result of the marked increasing in telecommuting and working from second homes you may be asked by a state to show where your residency is and where you worked. This can be a tricky issue and the rules vary among the states. There may be no easy answer here. Talk to your tax adviser if you're in this situation so you can prepare by documenting and perhaps even changing your routine.

 

June 22, 2022

News

The IRS has announced (IR-2022-128) that processing on a key group of individual tax returns filed during 2021 will be completed by June 23. Due to issues related to the pandemic and staffing limitations, the IRS began 2022 with a larger than usual inventory of paper tax returns and correspondence filed during 2021. The IRS took a number of steps to address this, and the agency is on track to complete processing of originally filed Form 1040 (individual tax returns without errors) received in 2021 this week. Business paper returns filed in 2021 will follow shortly after. The IRS continues to work on the few remaining 2021 individual tax returns that have processing issues or require additional information from the taxpayer. As of June 10, the IRS had processed more than 4.5 million of the more than 4.7 million individual paper tax returns received in 2021. The IRS has also successfully processed the vast majority of tax returns filed this year: More than 143 million returns have been processed overall, with almost 98 million refunds worth more than $298 billion being issued. IRS employees continue working hard to process these and other tax returns filed in the order received. The IRS continues to receive current and prior-year individual returns and related correspondence as people file extensions, amended returns and a variety of business tax returns. To date, more than twice as many returns await processing compared to a typical year at this point in the calendar year, although the IRS has worked through almost a million more returns to date than it had at this time last year. And a greater percentage of this year's inventory awaiting processing is comprised of original returns which, generally, take less time to process than amended returns. For more information, follow the link above.

Tip of the Day

Who's minding the store? . . . When small businesses are understaffed it's not uncommon for the owner or boss to fill in for a line worker. Clearly, if the job isn't done or the product shipped, you'll lose revenue and maybe the customer. But you can't neglect the job of managing the business, doing the paperwork, etc. And you've got to have enough controls to avoid employee theft. There are often simple steps you can do to safeguard the business. Get checks in the mail? Have them delivered to a post office box or another address and have your spouse or son or daughter open them and make a list before they're deposited or given to an accounts receivable clerk. Pressed for time? Scan the checks then put them in the system. The most popular accounting package can be set up so a high schooler can do much of the clerical entry and generate checks for your signature. Many banks offer a check writing service where they'll cut and mail the check. Talk to your accountant for ideas for your business.

 

June 21, 2022

News

The IRS has announced (IR-2022-127) expanded voice bot options to help eligible taxpayers easily verify their identity to set up or modify a payment plan while avoiding long wait times. Voice bots run on software powered by artificial intelligence, which enables a caller to navigate an interactive voice response. The IRS has been using voice bots on numerous toll-free lines since January, enabling taxpayers with simple payment or notice questions to get what they need quickly and avoid waiting. Taxpayers can always speak with an English- or Spanish-speaking IRS telephone representative if needed. Eligible taxpayers who call the Automated Collection System (ACS) and Accounts Management toll-free lines and want to discuss payment plan options can authenticate or verify their identities through a personal identification number (PIN) creation process. Setting up a PIN is easy: Taxpayers will need their most recent IRS bill and some basic personal information to complete the process. Additional voice bot service enhancements are planned in 2022 that will allow authenticated individuals (taxpayers with established or newly created PINs) to get:

Tip of the Day

Labor market softening? . . . It is in some places. Things are easing up a bit. Hiring appears to have slowed, at least from the hectic pace. There are scattered indications that salary escalation is easing, job switches are slowing. This isn't universal and it appears to be more a slowing of the increase, but trends like this can continue. But the labor market is both huge and varied. While some industries see a slowing, others are just as robust as ever. The same is true of locations. Whether the interest rates are taking effect or it's just a swing of the pendulum from the meteoric rise there are indications of an economic slowdown is on the horizon.

 

June 17, 2022

News

The two sure things in life are death and taxes and death won't let you escape taxes. In Estate of Anthony K. Washington, Deceased, Lenda Washington, Personal Representative (T.C. Memo. 2022-4) the deceased had failed to file income taxes for several years, despite significant earnings. While the taxpayer filed returns after the IRS inquired, the associated liabilities were not paid. The taxpayer entered into an installment agreement with the IRS, but died without leaving a will a year after the start. The IRS mailed the estate a Notice of Intent to Levy, in an attempt the outstanding $189,000 before penalties and interest. The estate submitted an offer in compromise for $10,000 citing doubt as to collectibility. The offer, and a subsequent one of $23,990 were rejected. The IRS noted that the gross value of the estate was considerably larger. The IRS determined the estate's claimed expenses which had priority over the federal lien were overstated and there was a reasonable collection potential of $120,000. The Court reviewed a number of factors and held there was no abuse of discretion by the IRS and sustained its determination.

Tip of the Day

Heading for a recession? . . . Certainly hope not, but that appears to be what the stock market is predicting. And the actions of the Fed, along with warnings of additional agressive rate increases suggest the same. The Fed is congnizant of the consequences of its actions and the last thing it wants is a recession. There is little doubt there will be a slowdown for some businesses, particularly those senstitive to interest rates. There's a strong possibility that many of the problems are related to the pandemic. First the sharp slowdown, followed by the lack of demand for many items and the massive influx of funds by the government to prevent a recession and then a sharp uptick in demand. The swings from trough to peak were larger than normal and the shifts in direction sharper, making reading the economy much more difficult. The best advice is to be prepared for the worst and hope for the best.

 

June 16, 2022

News

Amounts transferred from a corporation to a shareholder can be a loan or a dividend (or distribution for an S corporation) depending on several factors. The IRS will consider it a distribution unless you can show there is a bona fide loan. But many "loans" don't meet the IRS requirements for a bona fide loan. A transfer of funds by way of a bona fide loan has no immediate tax implications, but a distribution from an entity can. In Michael R. Kelly (T.C. Memo. 2021-61) the taxpayer bought and flipped businesses and bought and resold loans. He did business through a number of companies transferring funds between himself and them to finance activities. The Court found that the transfers were not bona fide loans but distributions that were, in part at least, taxable. In addition, the Court sustained the IRS's disallowance of a nonbusiness bad debt deduction. While the IRS assessed a fraud penalty, The Court found that the Service failed to show fraudulent intent by the taxpayer.

Tip of the Day

Elder Financial Exploitation . . . While it's probably existed forever, it's a issue that's become more important in recent years. Now the Financial Crimes Enforcement Network (FinCEN) is issuing an advisory to alert financial institutions to the rising trend of scammers targeting older adults. The U.S. Department of Justice estimates that at least 10 percent of older adults are affected by some form of elder abuse each year. The scams cover a wide range from simple telephone intimidation to identity theft and more sophisticated schemes.

 

June 15, 2022

News

Tax penalties can be expensive. The accuracy-related penalty can be 20 percent of the tax owed. Certain other penalties can be much more. A gross overvaluation penalty for a charitable contribution can be 40 percent. The fraud penalty can reach 75 percent. A couple of years ago taxpayers assessed a penalty found a loophole. The IRS rules require an examiner to obtain approval from his immediate supervisor before assessing a penalty and there's a requirement as to the timing of getting that approval. More than a few taxpayers escaped the penalty when the Service failed to comply with one or more of the requirements. Since the first case, the IRS has gotten smarter. In Long Branch Land, LLC, Big Escambia Ventures, LLC, Tax Matters Partner (T.C. Memo. 2022-2) the taxpayer tried this argument but the Court found the penalty had the requisite supervisor approval and noted the taxpayer offered no clear evidence to overcome the IRS's presumption of correctness.

Tip of the Day

Estimated taxes due . . . June 15 is the due date for individual estimated tax payments. If you had a lot of capital gains last year and paid tax on them you may want to reconsider your estimates. You may have decided to go with the safe harbor approach and pay as much as last year's liability. But that could reslt in a bi overpayment. You can, instead base each installment on the earnings for the prior quarter. June 15 is also one of the four times during the year for business owners who usea n S corporation or partnership to pay their state's pass-through entity tax, if it's available and you've elected to do so.