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January 27, 2023
NewsFact Sheet FS-2023-03 reminds taxpayers that they may have to report backup withholding on Form 945, Annual Return of Withheld Federal Income Tax. The information returns used to report backup withholding to payees include Forms 1099-DIV, 1099-INT, 1099-MISC and 1099-NEC (there are others in the 1099 series). The last day for filing Form 945 is January 31, unless all deposits have been made on time. Then the deadline is February 10. Most information returns are due to the IRS by February 28, if filing paper or March 31 if filing electronically. Form 1099-NEC are due to the IRS no later than January 31, 2023.
Tip of the DayWant more interest on your deposits? . . . While borrowing rates have increased, most banks haven't increased the return on deposits by a commensurate amount. But you can get some relief. Federal credit unions are as risk free as banks and you'll get good rates on any loans. Another option is money market funds. A direct investment in Treasury securities will also provide a better return than many banks.
January 26, 2023
NewsThe IRS has announced (IR-2023-14) that businesses can now file Form 1099 series information returns using a new online portal, available free from the IRS. Known as the Information Returns Intake System (IRIS), this free electronic filing service is secure, accurate and requires no special software. Though available to any business of any size, IRIS may be especially helpful to any small business that currently sends their 1099 forms on paper to the IRS. Filers can use the platform to create, upload, edit and view information and download completed copies of 1099-series forms for distribution and verification. With IRIS, businesses can e-file both small and large volumes of 1099-series forms by either keying in the information or uploading a file with the use of a downloadable template. Enrollment for the IRIS filing platform is now open. Filers should begin the enrollment process immediately. The Filing Information Returns Electronically (FIRE) system will remain available for bulk filing Form 1099 series and the other information returns through at least the 2023 filing season.
Penmanship is still important. In Gregory Bernard Colbert, II and Simone P. Colbert (T.C. Memo. 2022-74) the accuracy-related penalty was properly by an IRS supervisor, but the date of approval was illegible. As a result the Tax Court found it could not determine if the requirements of Sec. 6751(b)(1) were met and ruled the did not sustain the imposition of the penalty.
The IRS can require you to be up to date on estimated tax filings, returns, etc. before agreeing to an installment agreement. In Thomas E. Kelly (T.C. Memo. 2022-73) the settlement officer indicated to the taxpayer he would be eligible for a partial pay installment agreement (PPIA) if he satisfied his current tax obligations. When the taxpayer failed to do so the Court found the settlement officer did not abuse his discretion in denying the PPIA.
Tip of the DaySection 179 recordkeeping . . . We've discussed section 179 before. It allows you to write off up to $1,160,000 (2023 amount; adjusted for inflation) in equipment each year. Because you're writing off the property rather than depreciating it, you may think that you don't have to keep any records. That's not true. The writeoff is more like taking all the allowable depreciation in one year. Should you sell or otherwise dispose of the equipment, you may have to recapture some or all of that deduction. The best approach is to treat it like any other fixed asset (e.g., desks, computers, etc.). Most tax preparation programs have a fixed asset section. Enter it there and make the 179 election. The program should do the rest. And then make sure you keep bill of sale or other documentation for at least four years after you dispose of the equipment.
January 25, 2023
NewsThe IRS has announced that vVictims of severe winter storms, flooding, landslides, and mudslides in California that began December 27, 2022, now have until May 15, 2023, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today. Following the disaster declaration issued by the FEMA, individuals and households affected by severe winter storms, flooding, landslides, and mudslides that reside or have a business in Calaveras, Merced, Monterey, Sacramento, San Joaquin, San Luis Obispo, Santa Barbara, and Santa Cruz 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 December 27, 2022, and before May 15, 2023, are granted additional time to file through May 15, 2023. As a result, affected individuals and businesses will have until May 15, 2023, to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on April 18, as well as various 2022 business returns normally due on March 15 and April 18, 2023. Among other things, this means that eligible taxpayers will have until May 15 to make 2022 contributions to their IRAs and health savings accounts. In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1, 2023, will now have until May 15, 2023, to file their 2022 return and pay any tax due. The May 15, 2023, deadline applies to the quarterly estimated tax payments, normally due on January 17 and April 18, 2023. This means that individual taxpayers can skip making the fourth quarter estimated tax payment, normally due January 17, 2023, and instead include it with the 2022 return they file, on or before May 15. Click on the link above for additional information.
The IRS is reminding (IR-2023-12) taxpayers that they must again answer a digital asset question and report all digital asset-related income when they file their 2022 federal income tax return, as they did for fiscal year 2021. The term "digital assets" has replaced "virtual currencies," a term used in previous years. The question, which appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return, was revised this year to update terminology. In addition, the instructions for answering the question were expanded and clarified to help taxpayers answer it correctly. All taxpayers must answer the question regardless of whether they engaged in any transactions involving digital assets. For the 2022 tax year it asks: "At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?"
Tip of the DayDon't rush to file . . . Many taxpayers may be able to file their tax returns already. But unless your return consists only of a one or more W-2s, you might want to hold off for a bit. You could still get a 1099 you didn't expect or receive a revised investment statement. In addition, there could be revisions to the software early in he season.
January 24, 2023
NewsIt's not unusual for someone who's terminally ill to either write or direct someone with a power of attorney (POA) to write checks to reduce the value of the estate. You can now make gifts to relatives or friends of $17,000 annually (2023 amount; indexed for inflation) without impacting your estate and gift exclusion. In Estate of William E. Demuth, Jr., Deceased, Donald L.demuth, Executor (T.C. Memo. 2022-72) the decedent's son had a POA and made annual gifts to family members. The son wrote 11 checks shortly before the decedent's death, only one of which was cashed by the time he died. The IRS argued that the estate included 10 of the 11 checks because they were not paid until after the decedent's death. The Court noted that the value of any check written by a decedent that still belongs to them at their death is includible in their gross estate; however, the funds from such a check no longer belong to a decedent at their death if they executed a completed gift of the check during their life. The regulations provide that that a gift is not considered complete until a donor has parted with dominion and control as to leave him no power to change its disposition. The Court said that it had to look to state law to determine when a decedent parts with dominion and control of the funds. The issue revovled around the fact that the drawer of the check could issue a stop payment at any time before it was cashed making the delivery of the check revocable. The IRS conceded that three of the checks, but not the others. The Court noted that the IRS may have conceded in error, but let the concession stand. The other seven checks were held to be includable in the estate. (There may be ways to make the checks irrevocable. Talk to your attorney.)
Tip of the DayPrincipal residence . . . For many taxpayers that's easy. They have only one home. If you've got a vacation home it can be trickier, particularly in the COVID era. You may be working out of your vacation home (or any second home) and have even changed your mail, driver's license, voting registration, etc. That could indicate your second hoem is your principal residence which could be a problem if you want to qualify for the $250,000/$500,000 exclusion on the sale of your home. Fortuantely, to qualify the home has to be your principal residence for only two of the most recent five years. But this could also be an issue for state taxes. Talk to your tax advisor to make sure you're not falling into a trap.
January 23, 2023
NewsThe IRS has updated the list of counties Alabama where residents who have been affected by severe storms, straight-line winds and tornadoes that began January 12, 2023 qualify for tax relief. Added to the list were the counties of Coosa, Elmore, and Hale. The complete list of counties now includes Autauga, Coosa, Dallas, Elmore and Hale. For more information go to IRS.gov.
To secure a deduction for car and truck or traveling expenses you need to provide documentation of not only the time, place (and for car and truck expenses the beginning and ending mileage) but also the business purpose. That was the Tax Court's holding in Julian Wolpert and Estate of Eileen Wolpert, Deceased, Julian Wolpert, Executor (T.C. Memo. 2022-70). The Court also declined to apply the Cohan rule to certain other expenses for lack of any evidentiary basis to do so.
Tip of the DaySection 1244 stock . . . What is it? Normally if you put money into a business and the stock turns out to be worthless, the loss is a capital loss which can only be offset against capital gains or deducted $3,000 each year. Section 1244 is designed for small corporations and allows a deduction as an ordinary loss. The limit is $100,000 (married filing joint) which is taken in one year. Any additional losses are subject to the usual rules for capital losses. There are certain requirements (1) it only applies to stock in either an S or a C corporation, (2) it only applies to stock acquired from the corporation (not from another shareholder), (3) the initial stock capitalization of the company cannot exceed $1 million, and the business must be an operating company. That is more than 50 percent of the gross receipts must come from sources other than rents, royalties, dividends, etc. Good records are also important. Talk to your tax advisor.
January 20, 2023
NewsThe IRS has announced (IR-2023-09) storm victims in parts of Georgia and Alabama now have until May 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 in Butts, Henry, Jasper, Meriwether, Newton, Spalding and Troup counties in Georgia and Autauga and Dallas counties in Alabama qualify for tax relief. Other areas added later to the disaster area will also qualify for the same relief. The current list of eligible localities is available on Tax Relief in Disaster Situations. The tax relief postpones various tax filing and payment deadlines that occur starting on January 12, 2023. As a result, affected individuals and businesses will have until May 15, 2023, to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on April 18, as well as various 2022 business returns normally due on March 15 and April 18. Among other things, this means that eligible taxpayers will have until May 15 to make 2022 contributions to their IRAs and health savings accounts. In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1 will now have until May 15, 2023, to file their 2022 return and pay any tax due. The May 15, 2023, deadline also applies to the quarterly estimated tax payments, normally due on January 17, 2023, and April 18, 2023. This means that individual taxpayers can skip making the fourth quarter estimated tax payment, normally due January 17, 2023, and instead include it with the 2022 return they file, on or before May 15. The May 15 deadline also applies to the quarterly payroll and excise tax returns normally due on January 31 and April 30, 2023. In addition, penalties on payroll and excise tax deposits due on or after January 12, 2023, and before January 27, 2023, will be abated as long as the tax deposits are made by January 27, 2023. For more informationm go to IRS.gov for Alabama and Georgia.
The rules for credits on the purchase of an electric vehicle have changed substantially. Unfortunately, the regulations have yet to fully catch up to the new law. The IRS has released Notice 2023-1 provides some guidance on what it takes for a vehicle to qualify and the AGI limitations of the purchasing taxpayer.
Tip of the DayW2s, 1099s . . . The deadline is approaching. Most of the information returns are due out by the end of January, so there's not much time. The penalties for failure to file, or filing late are significant and they apply per W2 or 1099. Don't forget, if your business pays rent to you it has to file a 1099. The same applies if you loaned your business money any interest has to be reported. While an S corporation can distribute a reportable dividend, usually only C (regular) corporations have to worry about a 1099-DIV. Unsure of what's needed? Talk to your tax advisor.
January 19, 2023
NewsThe IRS has released Rev. Proc. 2023-14 containing the maximum depreciation amounts for passenger automobiles for vehicles put in service in 2023. Rev. Proc. 2023-14 also contains the lease inclusion amounts for leased vehicles with a fair market value of $60,000 or more. The first-year depreciation limit for passenger autos for which additional first-year depreciation applies is $20,200, up from $19,200. Second year depreciation is $19,500, up from $18,000. For autos first placed in service in 2023 that don't qualify for additional first-year depreciation, the limit on first-year depreciation is $12,200, up from $11,200; for the second year the maximum is $19,500, up from $18,000.
In a study (Abusive Tax Schemes) the Government ACcountability Office found that the IRS has taken steps to identify and stop promoters who arrange and market abusive tax schemes, but it could do more including enabling the reporting of abusive schemes using an online approach. Click on the link above for the full report.
Tip of the DayIRS Free File . . . If your adjusted is less than $73,000 and you have a relatively simple return, you may be able to use IRS Free File. Well, maybe you can't use it but your children, friends and relatives, and your employees might qualify. There are now seven tax preparation software companies that partner with the IRS to provide the service. Some provide the same service in Spanish as well as English. The software uses a question and answer approach making it easy for a novice.
January 18, 2023
NewsJust because the IRS doesn't challenge an issue on a tax return doesn't mean it's approving it. In Clair R. Couturier, Jr. (T.C. Memo. 2022-69) the taxpayer received a substantial amount from his employer which, the taxpayer claimed, was part of an qualified plan (an ESOP) and which he rolled over into an IRA. The IRS had examined the plan for a prohibited transaction some 5 years earlier and concluded none existed. At issue was the contribution to the IRA. The IRS argued the value of the stock in the plan was far less than the amount contributed to the IRA. Instead, the additional amount was not part of a plan, leading to the excess contribution. While the penalty for an excess contribution is 6 percent, it continues each year it is not corrected and, here it involved several years. The IRS claimed it never received a Form 1099-R showing a rollover. The taxpayer argued that there has to be an income tax deficiency before the IRS can assert an excise tax deficiency, but the Court rejected that argument. At no point did the IRS examine the taxpayer's Form 1040 for 2004 or make any determination regarding his income tax liability for 2004. Petitioner contends, in essence, that the IRS's inaction with respect to his income tax return amounted to tacit approval of the position he took on that return, i.e., that he had made a valid rollover contribution. But the law is well established: The IRS's failure to examine a return, or its failure to challenge a particular position that a taxpayer took on a return, does not constitute a concession or admission that the taxpayer's position was correct.
Tip of the DayCancel subscriptions . . . You can cut costs without taking away the coffee machine, just look at your subscriptions. Sue still is using a computer data service that she had access to when she worked for your company six months ago. And the service costs $475 a year. Three people in the office have subscriptions to a magaziine that none of them read any longer. Fred has a subscription to an online service that's not needed for his new job but wants to keep it for bragging rights. While you're at it be sure to take back any computers or other equipment when an employee leaves.
January 17, 2023
NewsKeep those records. If you haven't filed a return the IRS (or a state) can go back indefinitely. In John Edward Barrington and Deanna Barrie Barrington (T.C. Memo. 2022-68) the taxpayers had pleade guilty to criminal tax evasion. In the time between the criminal pleas and the IRS's civil examination, the FBI's records (the criminal case involved the FBI) were destroyed in the ordinary course of its operations. The FBI notified the Barringtons that they could reclaim their records and held them for some time. During that time, the Barringtons never attempted to do so, and the FBI destroyed them in late 2009. When the IRS commenced a civil examination in 2012, the examination function could not obtain records from the criminal investigation because they were grand jury materials. Bank records were also unavailable because of the amount of time that had elapsed since the years at issue. The taxpayers had failed to keep any records. As a result, the Commissioner used the information and figures from the plea agreements as the basis for his deficiency determinations. The Court held that the IRS approach was reasonable, citing the admissions the taxpayers made in their criminal case.
Tip of the DayDonating cryptocurrency? . . . Get some good tax advice first. In a recent Chief Counsel Advice (CCA 202302012) the IRS held that a taxpayer who makes a charitable contribution deduction of more than $5,000 in cryptocurrency is required to have a qualified appraisal. The IRS also held that using the value reported by a cryptocurrency exchange on which the currency is traded is not sufficient and would not provide a reasonable cause exception to the reporting requirements.
January 13, 2023
NewsThe IRS has announced (IR-2023-05) Monday, January 23, 2023 as the beginning of the 2023 tax season when the IRS will begin accepting and processing 2022 tax season returns. The IRS that over 168 million individual returns will be filed. The deadline this year is April 18 (April 15th is a Saturday and Monday, April 17 is Emancipation Day). Free file will open January 13. The IRS projects refunds to be issued in less than 21 days. As usual, taxpayers with Earned Income Tax Credit (EITC) claims on their return won't receive a refund before February 28.
The House has passed a bill that would rescind the additional funding for the IRS that was in signed into law as part of the Inflation Reduction Act passed last summer. Between the fact that the Senate is controlled by Democrats as well as the White House, it's highly unlikely the bill will go further.
Tip of the DayShort-term rentals . . . If you rent property for seven days or less on average, it's not a passive activity and doesn't come under the usual rules. If you provide significant services with the rental such as maid service, regular cleaning, etc. you may have to report the income on a Schedule C and be subject to the self-employment tax. The proper reporting will depend on all the facts. Discuss the situation with your tax advisor.
January 12, 2023
NewsThe IRS has updated the list of counties in California where residents who have been affected by severe winter storms, flooding and mudslides qualify for tax relief. The additional counties include Alameda, Contra Costa, Fresno, Kings, Lake, Madera, Mono, San Benito, San Francisco, and Tulare. The complete list now includes Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba counties. For more information, go to California Storm Victims Qualify for Tax Relief.
the Internal Revenue Code requires the National Taxpayer Advocate to prepare an Annual Report to Congress that contains a summary of the ten most serious problems encountered by taxpayers each year. For 2022, the National Taxpayer Advocate has identified, analyzed, and offered recommendations to assist the IRS and Congress in resolving ten such problems. The problems identified in the current annual report lists the most serious problems as procesing delays, complexity of the tax code, IRS hiring and training, telephone and in-person service, online access for taxpayers and tax professionals, Efile and free file, IRS transparency, return preparer oversight, appeals, and overseas taxpayers.
Tip of the DayActive participation . . . You can only deduct losses on rental real estate if you own at least a 10 percent interest and actively participate in the management of the property. The active participation requirement is usually pretty easy to meet. You can do so by approving new tenants, lease terms, maintenance, etc. You don't have to physically work on the property. While the IRS doesn't excessively scrutinize this area, don't just turn everything over to a management company.
January 11, 2023
NewsThe IRS has announced that California storm victims now have until May 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 FEMA. This means that individuals and households that reside or have a business in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo and Yuba counties qualify for tax relief. Other areas added later to the disaster area will also qualify for the same relief. The tax relief postpones various tax filing and payment deadlines that occurred starting on January 8, 2023. As a result, affected individuals and businesses will have until May 15, 2023, to file returns and pay any taxes that were originally due during this period. This includes 2022 individual income tax returns due on April 18, as well as various 2022 business returns normally due on March 15 and April 18. Among other things, this means that eligible taxpayers will have until May 15 to make 2022 contributions to their IRAs and health savings accounts. In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1 will now have until May 15, 2023, to file their 2022 return and pay any tax due. The May 15, 2023, deadline also applies to the quarterly estimated tax payments, normally due on January 17, 2023, and April 18, 2023. This means that individual taxpayers can skip making the fourth quarter estimated tax payment, normally due January 17, 2023, and instead include it with the 2022 return they file, on or before May 15. For more information, go to California Storm Victims Qualify for Tax Relief.
Tip of the DayCredit card scams . . . They're not just for customers. Merchants can fall for a scam just as easily as consumers--and for more money. When you process a credit card charge you receive authorization from the card company and you should be safe. But what if you take the order, ship the goods and only then process the charge? If you can't get authorization, you'll be stuck. There are other situations in which the bank may disclaim responsibility, or if it credits your account and authorization is canceled, you could be responsible for the amounts. Check with your bank on the rules. To avoid problems be suspicious of:
January 10, 2023
NewsYou may be able to have your tax liability reduced if there is doubt as to collectability. For example, you live in rent, and both you and your spouse have been retired and in and out of hospitals. In Alejandro Serna (T.C. Memo. 2022-66) the taxpayer received a large distribution from a retirement plan and thought the withholding would cover the tax. The taxpayer had a disabled son and estranged wife. His income was insufficient to cover the tax liability, but the equity in his home was actually exceed the outstanding liability. The taxpayer sought an offer-in-compromise of just one-sixth of his liability. The settlement officer but put the account in currently not collectible (CNC) status until his income increases substantially. The Tax Court found no abuse of discretion.
Taking a frivolous position on a return or in court won't help your situation. In Louis U. Giannini and Dawn M. Giannini (T.C. Memo. 2022-65) the taxpayers failed to report wage income and claimed that it was not taxable using one of the frivolous arguments that contend certain wage income is not taxable. The Tax Court rejected the argument and sustained the IRS's assessment of the failure to file, failure to pay penalty since they could not show they filed the return by the original due date.
Tip of the DayTravel expenses for rental property . . . You may be able to deduct expenses related to a rental property. But there are several requirements. First, to deduct the whole trip the primary purpose must be for taking care of the rental property. Expenses incurred unrelated to the property aren't deductible. That's an important consideration if there's a strong personal reason for visiting the area (e.g., relatives, resort activities, etc.). If the trip is to improve the property rather than maintenance, you can't deduct those expenses, but add them to the cost of the improvements. Keep in mind that recordkeeping is critical. Keep a log of your activities and the time spent on the rental vs. other activities. And remember, travel and meals come under strict recordkeeping reqirements. For any travel by car, keep a mileage log.
January 9, 2023
Newshe IRS announced (?IR-2023-02) completed the final corrections of tax year 2020 accounts for taxpayers who overpaid their taxes on unemployment compensation they received in 2020. The American Rescue Plan Act of 2021 excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations (up to $10,200 for each spouse if married filing joint). To ease the burden on taxpayers, the IRS took steps to review the Forms 1040 and 1040-SR that were filed prior to the law's enactment to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. The IRS determined the correct taxable amount of unemployment compensation and tax. Some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. The IRS mailed a letter to these taxpayers to inform them of the corrections. Taxpayers should keep that letter with their tax records. The IRS corrected approximately 14 million returns. This resulted in nearly 12 million refunds totaling $14.8 billion, with an average refund of $1,232. The IRS also made adjustments to the earned income tax credit, recovery rebate credit, additional child tax credit, and the premium and advance premium tax credit.
Tip of the DayVacant rental property . . . Clearly, if you're renting property you can deduct your ordinary and necessary expenses. The same applies if the property is available for rent, but not yet rented because you haven't been able to secure a tenant. Expenses incurred before the property is available for rent are generally not deductible but must be capitalized.
January 6, 2023
NewsNot filing returns when you have taxable income will quickly get you into trouble. In David Gilmartin (T.C. Memo. 2022-64) the taxpayer failed to report wages, nonempployee compensat6ion, interest income, and distributions reportable on Form 1099-R. In addition, the taxpayer was liable for the self-employment tax on some of his income. The taxpayer earlier had been found guilty of criminally failing to file. Here the Court found the taxpayer liable for the civil penalties one of which was as high as 75 percent, the other 25 percent. In addition, the Court found the taxpayer liable for the failure to pay estimated tax penalty for a number of the years at issue. Finally, the Court imposed a penalty of $5,000 for advancing frivolous arguments.
Tip of the DayRequired minimum distributions . . . Once you reach 73 (for those who attain that age after December 31, 2022) you must start taking distributions from your traditional IRAs and certain other plans. But what if you take a distribution early? It won't count toward your required minimum. It will reduce the total balance in the plan and, since the required minimum distributions are based on the amount in the plan and your age, anything you take out early will reduce later required distributions--but not enough to be significant. The only time taking distributions early makes sense is if your income is well below your regular level. And then only if the penalty doesn't apply and you're closing in on retirement.
January 5, 2023
NewsStart-up expenses fall under a special set of rules. (Section 195) You can only deduct $5,000 of such expenses and then only if the expenditures don't exceed $50,000. Amounts in excess of that must be capitalized and deducted ratably over 180 months. Once the venture becomes an active trade or business, further expenditures can be deducted or capitalized under the usual rules. The most litigated issue is when is the venture and active trade or business? That was the question in Gregg Michael Kellett (T.C. Memo. 2022-62). The taxpayer's venture was a website where users could access certain information. Revenue would come from advertising, a monthly fee for certain services and selling personalized information. The website went live in 2015 but did not earn revenue until 2019. The strategy was to cultivate confidence in the site. Normally, a business becomes "active" when it first receives revenue. But that's not the only test. The Court noted that expenses incurred before the website went live could not be deducted currently. The Court held that the opening of the website constituted an active trade or business. When calculating the business expenses the Court allocated his Verizon service between business and personal use based on the number of hours he worked on the project per week to the nonworking hours. The allocation calculation weighed against the taxpayer because he could not support his nonworking hours.
Tip of the DayNote as compensation . . . It's not unusual for a company in the early stages to be short of cash. The company may want to pay you for your services (in whole or part) with a note instead of a check. If it's a secured note, the fair market value (usually the face amount) is taxable in the year you receive the note. Later payments go to reduce the principal outstanding. If the note doesn't bear interest, you may have to apply a discount. If the note is unsecured and nonnegotiable don't include the value of the note in income, only the amount of principal paid down each year. Again, you may have to discount the note. Talk to your tax advisor.
January 4, 2023
NewsPresident Biden has signed into law the Omnibus Spending Bill. The most significant tax aspect of the Act is that it includes SECURE 2.0 Act, that enchances a number of retirement provisions, including increasing catch-up limits, and increasing the age to begin required minimum distributions.
The IRS has issued Revenue Procedure 2023-2 contains the annual revisioin relating to the issuance of technical advice by the Associate Chief Counsel when requested by a field office.
Rev. Proc. 2023-1 updates the procedures for requesting written guidance including letter rulings and determination letters under the perview of the Associate Chief Counsel. The revenue procedure discusses areas where the IRS will not rule.
Tip of the DayIt's a New Year . . . The new year brings many things, among them changes in the laws and regulations. Check the rules for the states you do business in. Many have raised their minimum wage, changed the labor laws, the environmental protection rules, etc. Local law may change the housing code that affects rentals as well as a myriad of other rules. There may also be new benefits and credits available for electric vehicles, energy conservation, etc.
January 3, 2023
NewsThe IRS has issued Revenue Procedure 2023-11 providing updated guidelines for accounting method changes for specified research or experimental expenditures. The new guidance modifies and supersedes Revenue Procedure 2023-8, issued earlier this month. Revenue Procedure 2023-11 is designed to encourage timely compliance with changes ade by the Tax Cuts and Jobs Act, enacted in 2017. In general, the TCJA changes apply for specified research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021.
The IRS has announced that it will begin accepting all business tax returns at 9 a.m. Eastern time on January 12, 2023.
Tip of the DayCredit score improvement . . . There are some things you can do to improve your credit score. The first is to pay your bills on time. That seems obvious. But what if you're short? Negotiate with your creditor. Many medical practices and hospitals will send the bill to collection after just a few months. The irony here is that failure to send a check for the $50 co-pay will hurt your credit about as bad as being a month late on your mortgage. The second move is to pay down credit cards that are beyond about 30 percent of your limit. The closer you approach a limit, even on one card, the bigger the hit to your rating. Third, don't pay off that car loan early. Two reasons. First, the interest rate on a car loan is currently less than almost any other type of loan (new car loans are cheaper than used). Second, an installment loan on which you're making regular payments will improve your credit rating. Fourth, check your credit report for mistakes. They're not unusual. And they can be dumb and disastrous. That $50 co-pay you forgot to pay your doctor may be on there; or maybe you paid it but the clinic never credited your account.
December 30, 2022
NewsThe IRS has announced (Notice 2023-03)the optional standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. Beginning on January 1, 2023, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
Notice 2023-03 emphasized that the rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
The IRS has announced victims of severe winter storm beginning December 23, 2022, now have until April 18, 2023, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households affected by severe winter storm that reside or have a business in Erie and Genessee 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 December 23, 2022, and before April 18, 2023, are granted additional time to file through April 18, 2023. The April 18, 2023, deadline applies to the quarterly estimated tax payments, normally due on January 17, 2023, and to the quarterly payroll and excise tax returns normally due on January 31, 2023. Penalties on payroll and excise tax deposits due on or after December 23, 2022, and before Jan. 9, 2023, will be abated as long as the tax deposits were made by January 9, 2023. Click on the link above for more details and links to other resources.
IRS Fact Sheet FS-2022-42 contains a set of frequently asked questions (FAQs) about clean vehicle credits for new, previously owned, and commercial vehicles with the changes made by the Inflation Reduction Act of 2022. These FAQs provide detail on how the IRA revises the new clean vehicle credit for individuals and businesses, and information on the previously owned clean vehicle credit for individuals, and the new credit for qualified commercial clean vehicles.
Tip of the DayConstructive receipt . . . Remember, if you get a check at the end of the year you can't avoid reporting it as income in 2022 by not cashing it. If you had "constructive receipt" that is, you could have cashed the check or accepted the check if it's hand delivered, it's income. On the expense side, if you put the check in the mail by the end of the year, it's deductible this year.
December 29, 2022
NewsIf the facts are in dispute, don't go to court without evidence. While the facts were more complex in Ronald W. Howland, Jr. and Marilee R. Howland (T.C. Memo. 2022-60) the IRS can deny a tax deduction for mortgage interest if you can't produce a Form 1098. Here the facts were complicated by the transfer of the taxpayers' bank line of credit agreement (secured by their home) through several parties as a result of a closure of the original bank and a first mortgage held by another lender. The taxpayers' property was foreclosed with the accrued interest at the time amounting to some $100,000. The Court noted that the general rule in this area is that voluntary partial payments made by a debtor to a creditor are, in the absence of any agreement between the parties, to be applied first to interest and then to principal. However, an exception to this general rule exists in the case of an involuntary foreclosure of mortgaged property where the evidence "strongly indicates" that the mortgagor is insolvent at the time of foreclosure. The Court noted the payments here were not voluntary and there was no evidence the taxpayers were insolvent at the time of foreclosure. The taxpayers argued the final holder of the note was bound by contract to apply the foreclosure principal first to interest, then principal. The IRS argued that the payment provisions found in the promissory note are not applicable here in the context of a foreclosure sale. Since there was no documentation showing how the last note holder applied the proceeds and whether the taxpayers any remaining principal. If those facts were in the taxpayers' favor, they could show the taxpayers did indeed pay interest first. However, because the burden of proof was on the taxpayers, they failed to sustain their burden.
Tip of the DayProperty received is income . . . It's not unusual for a small business to be paid in property rather than cash. Or for an individual to win a prize or award. Both transactions produce taxable income, but how much? Generally, the amount is equal to the fair market value of the item. For example, the best price you can find for a laptop by the same manufacturer with the same specs is $450. Then that's the amount of income received. That's way it's better to get paid in cash--unless the item is exactly what you're looking for. If the item received were a kayak and you live in Nebraska and have a fear of water, you'd still have to value the item the same way. There's an exception to the general rule. If you contracturally agree on a price for your services before you're entitled to receive the property. Talk to your tax advisor about your particular situation.
December 28, 2022
NewsThe IRS has updated the tax relief for victims of Hurricane Nicole beginning November 7, 2022. Taxpayers in an additional 49 counties can now qualify for relieft that includes a postponement of the deadline to file individual and business returns until March 15, 2023. The complete list of counties and tribes that qualify for relief include Alachua, Baker, Bradford, Brevard, Broward, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Holmes, Indian River, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Martin, Miami-Dade, Nassau, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, Suwannee, Taylor, Union, Volusia, Wakulla, and Washington Counties; the Miccosukee Tribe of Indians of Florida and the Seminole Tribe of Florida. For additional information and relief go to IRS Announces Tax Relief for Victims of Hurricane Nicole.
The IRS has issued guidance (Notice 2022-07) on an interim basis regarding the application of the new corporate alternative minimum tax (CAMT) until the issuance of proposed regulatiosn.
Tip of the DayConsolidated Appropriations Act . . . The bill has passed the House and Senate and is awaiting President Biden's signature. It's main purpose was to continue to fund the government, but, as with most other legislation, contains a number of unrelated provisions. What is notably absent is "extenders" that would continue some tax provisions. It does contain the provisions of the SECURE 2.0 Act, liberalizing pension plans and IRAs, and delaying the required starting age for required minimum distributions.
December 27, 2022
NewsThe IRS has released a Fact Sheet (FS-2022-40) containing frequently asked questions about energy efficient home improvements and residental clean energy property credits. The sheet is intended to provide general information to taxpayers and tax professionals on an expeditious basis. The FAQs include questions on insulating property such as energy efficient windows and doors, home energy audits, etc. and residential clean energy property including solar electric, solar water heating, small wind energy, geothermal heat pumps and battery storage. (See also Announcement 2023-01.)
Tip of the DayW-4 rules . . . If you don't get a W-4 (Employee's Withholding Certificate) from a new employee you have to withhold at the highest rate as if they were single. If you get a new certificate from an existing exmployee you must change the amount withheld no later thant the first payroll period 30 days after receiving the form. You can, of course< do it much sooner.
December 22, 2022
NewsH.R. 2617, the Consolidate Appropriations Act of 2023 would provide continued funding for the Federal government and would make a number of changes to the rules for IRAs, SIMPLE and other qualified retirement plans to make them more attractive as well as enhancing the Saver's Credit. The law would also further delay the requirement for individuals to take a required minimum distribution from certain plans.
Notice 2023-8 provides additional guidance for brokers to comply with the provisions of the final regulations under Section 1446(f) that related to withholding on the transfer of an interest in a publicly traded partnership (PTP interest). The IRS intends to issue proposed regulations that would amend the final regulations to implement this additional guidance.
Tip of the DayFinding fraud . . . Even small businesses are susceptible to fraud. Often they are particularly good targets. And the amount stolen can be in the hundreds of thousands. If you're accountant merely prepares financials, or even if he does a compilation or review of your financials, he is unlikely to catch a moderately good fraud because he's not particularly looking for it. He will perform certain tests that might catch it, but don't count on it. Discuss the issue with your CPA and ask him or her to specifically look for fraud. Since most frauds start small but go on for years, usually until detected, it may not be necessary to go the extra effort every other year. Consider doing it during the off season--that is after April 15th.
December 21, 2022
NewsThe General Accountability Office (GAO) did a report on the IRS's recent performance, noting the struggles from the pandemic and that as of late September 2022 it still had some 12 million returns (individual and business) that had yet to be processed. The level of backlog in taxpayer correspondence has been reduced from about 5 million to about 400,000. An encouraging note was that hiring has progressed to the point where it will be in much better shape for the the 2023 filing season. To see the complete report, go to GAO-23-105880,
The U.S. Treasury Department has announced a timeline for providing additional guidance on key provisions of the Inflation Reduction Act. Beginning January 1, 2023 taxpayers will be able to access tax benefits from many of the law's climate provisions. Before the end of the year the IRS will provide information including FAQs for consumers on tax credits for energy efficient home improvement projects and residential energy property, as well as guidance on the corporate alternative minimum tax and the excise tax on stock buybacks. Also at the top of the list is guidance on the critical minerals and battery components for electric vehicles. For more details, go to Treasury Announces Information Timeline for Inflation Reduction Act Tax Implementation.
Tip of the DayResidential market softening . . . But ever so slightly. The supply is still extremely tight, and, while list prices for the most part aren't being bid up, in most markets they haven't receded much. The main reason is the limited supply caused by sellers reluctant to move into a new dwelling at a high interest rate. Could prices plummet as they did in 2008? That's unlikely because most owners have more equity in their homes and have better income coverage of their debt payments. In addition, a key factor in the financial markets that precipitated the crash are absent. While nothing is certain, a sharp drop in prices is unlikely.
December 20, 2022
NewsThe IRS issued Notice 2023-06 regarding the Sustainable Aviation Fuel (SAF) credit. This is a new credit created by the Inflation Reduction Act of 2022. It applies to a qualified fuel mixture containing sustainable aviation fuel for certain sales or uses in calendar years 2023 and 2024. The notice explains the requirements for the fuel to be eligible for the SAF credit, the various methods in which a claimant may claim the credit, and which parties must be registered for the different activities in the process. The notice also asks for public comments on various aspects of the statute, which will help Treasury and IRS in developing additional guidance. The SAF credit is $1.25 for each gallon of sustainable aviation fuel in a qualified mixture.
In Anthony L. Phillips (T.C. Memo. 2022-57) the Tax Court held the taxpayer could not challenged his underlying tax liabilities in a collection due process hearing because he made no such argument during the hearing and failed to indicate he wanted to do so on Form 12153, Request for Collection Due Process or Equivalent Hearing.
Tip of the DayExpense report fraud . . . If your employees incur expenses outside the company and you reimburse, there's a good chance one or more of them are padding their expenses. Sometimes it's small or maybe inadvertent (e.g., putting a small personal expense on the company card by accident), but if you've got 5 employees with company cards, there's a good chance at least one of them is taking some serious money out of your business. The first step is to make sure employees produce expense reports on a regular basis, at least monthly. Second, make sure someone is checking them, at least on a random basis. If an employee thinks no one is looking, you're asking for trouble. Third, make sure they turn in receipts to support the expense, with the IRS requirements as a minimum. If you're audited the IRS will be checking and missing receipts often means a lost deduction. That means you not only are out the cash, you're out a tax deduction. Who performs the review function depends on a number of factors, but routine reviews are often done by the accounts payable staff. Don't ignore upper management, owners, or relatives. Have something in your employment, partnership, etc. agreement. Touchy area? Get your CPA to review them. In one case an employee who was the son of one of the owners ran up $60,000 in personal travel, entertainment, and purchases.
December 19, 2022
NewsThe IRS has announced that victims of Hurricane Nicole beginning November 7, 2022, now have until March 15, 2023, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households affected by Hurricane Nicole that reside or have a business in Brevard, Duval, Flagler, Indian River, Lake, Martin, Nassau, Palm Beach, Putnam, St. Johns, St. Lucie, and Volusia 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 November 7, 2022, and before March 15, 2023, are granted additional time to file through March 15, 2023. The March 15, 2023, deadline applies to the quarterly estimated tax payments, normally due on January 17, 2023, and to the quarterly payroll and excise tax returns normally due on January 31, 2023. Penalties on payroll and excise tax deposits due on or after November 7, 2022, and before November 22, 2022, will be abated as long as the tax deposits were made by November 22, 2022. For more information, click on the link above.
Tip of the DaySales tax exemptions . . . Most states provide an exemption from sales tax for machinery and equipment used in a production process such as manufacturing. Exemptions are also usually aprovided for equipment used in farming. Sometimes the two are melded, sometimes separate. The exemption may be restricted to property used solely in manufacturing or farming or predominantly used in those activities. Exclusively means the equipment can never be used (sometimes there's a de minimis exception) for any other purpose. Predominantly generally means more than 50 percent. Check the rules carefully. it can make a big difference.
December 16, 2022
NewsIn a collection due process hearing you're basically allowed to discuss collection alternatives, i.e., ways to pay your outstanding liability and some other issues. It's not intended for challenging your liability. If you recieved a notice of deficiency you had an opportunity to challenge the liability at that time. In Innocent O. Chinweze (T.C. Memo. 2022-56) the Court found the settlement officer did not abuse his discretion in upholding a notice of federal tax lian. The IRS showed he received a notice of deficiency, the settlement officer all procedures were followed, and that the taxpayer failed to substantiate claims of hardship.
You may be able to avoid joint liability with a spouse or former spouse on a joint tax return if you qualify for innocent spouse relief. In Jan E. Pocock (T.C. Memo. 2022-55) the IRS asserted that the taxpayer and her former spouse were hiding assets from the former husband's mother's estate. The Court also found that the taxpayer met the seven threshold requirements for relief under Section 6015(f) and granted the taxpayer streamlined relief from joint and several liasbility.
Tip of the DayAttorney client privilege has its limits . . . The attorney-client privilege protects confidential communications between client and an attorney made for the purpose of obtaining or providing legal assistance. Information conveyed to a lawyer by a client solely for the purpose of retransmission to a third-party is generally not protected by the attorney-client privilege, and the result is no different when the third-party is the IRS and the means of retransmittal is a tax return. The issue hinges on whether the information was conveyed by the client to the attorney in confidence for the purpose of obtaining legal advice and not merely for the purpose of retransmittal to a third party. The attorney-client privilege can also be lost if you reveal the information to a third party. Best advice? If you want the information to remain privileged, talk to your attorney and make sure you understand the nuances of the law.
December 15, 2022
NewsT.D. 9970 includes final regulations under the Internal Revenue Code that provide an automatic extension of time for providers of minimum essential coverage (including health insurance issuers, self-insured employers, and government agencies) to furnish individual statements regarding such coverage and an alternative method for furnishing individual statements when the individual shared responsibility payment amount is zero. The final regulations also provide an automatic extension of time for "applicable large employers" (generally employers with 50 or more full-time employees, including full-time equivalent employees) to furnish statements relating to health insurance that the applicable large employers offer to their full-time employees. Additionally, the final regulations provide that "minimum essential coverage," as that term is used in health insurance-related tax laws, does not include Medicaid coverage limited to COVID-19 testing and diagnostic services provided under the Families First Coronavirus Response Act. The final regulations affect some taxpayers who claim the premium tax credit; health insurance issuers, self-insured employers, government agencies, and other persons that provide minimum essential coverage to individuals; and applicable large employers.
The IRS is reminding (IR-2022-220) employers and self-employed individuals that chose to defer paying part of their 2020 Social Security tax liability that their second annual installment of the deferred amount is due on December 31, 2022. As part of the COVID relief provided during 2020, employers could choose to put off paying the employer's share of their Social Security tax liability, which is 6.2% of wages. Self-employed individuals could also choose to defer a similar amount of their self-employment tax. Generally, half of that deferral was due on December 31, 2021. The other half is due on December 31, 2022. Click on the link above for more information.
Tip of the DayContest assessment . . . While home prices and some commercial real estate has risen sharply in the last few years, much the opposite has happened to some commercial properties. Some retail space has been empty, as has some office space. If that's the case for a property you own, consider contesting the valuation for real estate tax purposes. How much you save will depend on a number of factors. As opposed to a home where the homeowner himself may be able to do the work, for commercial properties it's best to call in a party that specializes in assessments. Because the dollars can be much larger the town or county is unlikely to give in as easy. You might have other options depending on the circumstances, such as a lowering of the assessment because you're going to rehabilitate the property.
December 14, 2022
NewsThe IRS has released an updated version of Understanding Your Form 1099-K. the webpage provides information on the new rules related to information Form 1099-k. The page also advises taxpayers to check the 1099-K to insure the amount as well as the other information on the form such as the Merchant Category Code, TIN, name of entity receiving payments, etc. is accurate. If not, you should requrest a corrected version.
Tip of the DayTaming the high car prices . . . If you can hold onto your current vehicle it makes sense to wait. Even if you have to pay for some repair work. Price pressure on new cars is easing. Because of the shortage of vehicles, many dealers are still charging above list. That will change. You can save money by avoiding the most popular vehicles and those that are in short supply. But if you normally hold on to your cars for a long time and/or put high mileage on them, don't avoid a reliable model just because it's more expensive. And consider the options carefully. Do you really need a navigation system if you spend 95 percent of your car time around town. Your smart phone has a great GPS. On the other hand, if you're getting rid of the car in a few years some options increase the resale value. Consider leasing. It might be the cheaper optionbut you'll have to look at the numbers carefully. Finally, dealers make money on the financing. But financing through the dealer gets you in the car quicker. If the interest rate is high you may be able to lower it by refinancing with a credit union.
December 13, 2022
NewsRevenue Procedure 2023-8 modifies Rev. Proc. 2022-14, to provide procedures under Sec. 446 of the Code and Sec. 1.446-1(e) of the Income Tax Regulations to obtain automatic consent of the IRS to change methods of accounting for specified research or experimental expenditures to comply with Sec. 174 of the Code, as amended by Tax Cuts and Jobs Act (TCJA).
The IRS has issued Revenue Procedure 2022-42 setting out key processes for manufacturers and sellers of clean vehicles. These processes are required for vehicles to be eligible for one or more clean vehicle tax incentives, including tax credits for new and previously owned clean vehicles, as well as for commercial clean vehicles. For vehicle manufacturers, Rev. Proc. 2022-42 provides guidance on new rules in the tax law added by the Inflation Reduction Act on how to enter into a written agreement with the IRS and how to provide periodic written reports containing specified information related to each clean vehicle manufactured. This revenue procedure also provides the procedures for persons selling vehicles to report specified information to the IRS for a vehicle to be eligible for the credit for new or previously owned clean vehicles.
Tip of the DayTrading work hours . . . Whenever a wage and hours question pops up, it's best to get advice from your state labor department or a labor law professional. One employer gave nonexempt workers paid time off to deal with a snowstorm. He later asked them to work an equal amount of time for free to make up for the time off. The state said the employer had to pay the employees for any time worked. The paid time off couldn't be used to offset time worked.
December 12, 2022
NewsThe IRS has issued final regulations (T.D. 9969) that except certain partnership-related items from the centralized partnership audit regime created by the Bipartisan Budget Act of 2015, and sets forth alternative rules that will apply to the examination of excepted items by the IRS. The centralized partnership audit regime does not apply to a partnership-related item if the item involves a special enforcement matter described in these regulations. Additionally, these regulations make changes to the existing centralized partnership audit regime regulations to account for changes to the ICode as well as changes that clarify those regulations. The regulations affect partnerships and partners to whom special enforcement matters apply.
If a taxpayer has a seriously deliquent tax debt the IRS is required to transmit that information to the Secretary of State and the taxpayer's passport can be denied or revoked. A seriously delinquent tax debt is a Federal tax liability that has been assessed, exceeds $50,000 (adjusted for inflation), is unpaid and legally enforceable, and with respect to which a lien notice has been filed or a levy made. A taxpayer can petition the Tax Court to decide whether the certification was erroneous or whether the the IRS has failed to reverse the certification. In Ifeoma Ezekwo (T.C. Memo. 2022-54) while the taxpayer paid down a portion of the debt, there still remained an amount which exceeded the threshold. The Court found that the IRS's certification of a seriously deliquent debt was supported by the evidence.
Tip of the DayTrust rules . . . Most taxpayers put brokerage accounts, real estate, etc. into revocable, not irrevocable trusts. With a revocable trust the income from the property is taxed to the grantor (the person who put the property into the trust). The trust is ignored for income tax purposes, but the trust does have many nontax benefits. On the other hand, income generated by an irrevocable trust is taxed to the trust, unless it's distributed. And trust tax rates are much steeper than those for individuals. The top rate of 37 percent applies to income over $13,450 for 2022. For individuals the top rate applies to income above $539,900 for single taxpayers. If you have such a trust make sure you discuss the rules with your tax advisor to make sure you take the proper distributions are made for 2022.
December 9, 2022
NewsRev. Rul. 2022-24 provides tables of covered compensation under Sec. 401(l)(5)(E) of the Code.
The rules can get complex for larger charitable gifts of property. And the IRS and the courts strictly enforce them. In Martha L. Albrecht (T.C. Memo. 2022-53) as part of the contribution, a formal deed of gift was executed. The second page was titled "Conditions Governing Gifts to the Wheelwright Museum of American Indian" and specified conditions governing gifts to the museum. One of these conditions stipulated in relevant part that "the donation is unconditional and irrevocable; that all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement." The IRS claimed the conditions required for the gift to be deductible were not met. Specifically, it did not specify whether the Wheelwright Museum provided any goods or services in return for the donation or state that it represented the entire agreement between the museum and petitioner. Specifically, respondent points out the reference in the deed to the "Gift Agreement" as creating ambiguity as to whether additional terms, including donee provision of goods or services, were part of the donation. The Tax Court held that the deed did not satisfy the requirements needed for a deduction.
Tip of the DayDeductions and credits . . . A deduction reduces your taxable income. How much it reduces your tax depends on your tax rate. If you're in the 40 percent bracket, a $100 deduction will reduce your taxes by $40. A credit reduces your taxes dollar-for-dollar. For example, for installing certain energy efficient equipment you can receive a 10 percent credit based on the equipment price. If the equipment cost $100 the credit is $10 and that's the amount of the reduction in your taxes. There's usually a trade-off. You've got to reduce your basis in the equipment by the amount of the credit. So, for depreciation purposes, the equipment is valued at $90. Finally, credits can be refundable or nonrefundable. A refundable credit is one where you're entitled to the full amount of the credit. If your taxes are reduced below $0, the IRS will send you a for the remainder. For example, Fred has $6,000 in credits during 2022, but his taxes are only $3,500. The credit wipes out Fred's taxes and the IRS will send a refund for $2,500. If the credit is nonrefundable, you can only use up to the amount of your taxes, $3,500.
December 8, 2022
NewsThe IRS has released the actual text of REG-106134-22 the proposed regulations on syndicated conservation easement transactions as listed transactions.
In Genecure, L.L.C., Frank Y. Tung, Tax Matters Partner (T.C. Memo. 2022-52) the IRS claimed the tax matters partner and chief executive officer had unreported income as a result of disallowed expenses. Some of the disallowed expenses were the result of poor substantiation, some because they appeared to be personal in nature, and some because they did not meet the strict substantiation requirements of Section 274 relating to travel expenses. In order for travel expenses to be deductible you must show (1) the amount of each expenditure for traveling away from home, (2) the date of departure and return for each trip and the number of days spent on business, (3) the destination or locality of travel, and (4) the business reason for travel or the expected benefit to be derived from such travel.
Tip of the DayEstimated taxes . . . For individuals, January 15th is the last opportunity to pay estimated income taxes for federal, and most state, purposes. It's more important now than in the past since the interest rates on underpayments have risen to 7 percent. You can't make up for underpayments in earlier quarters, but you can stop any additional interest from accruing. And, if you make pass-through entity tax payments for an S corporation or partnership in a state, check those payments. You should also keep in mind that those state payments may not coincide with the usual April, June, September, and January payment schedule.
December 7, 2022
NewsAnnouncement 2022-28 is being released in conjunction with proposed regulations identifying certain syndicated conservation easement transactions as listed transactions. The announcement explains that the regulations are being proposed in light of certain court decisions holding that the APA requires the IRS to identify listed transactions through notice-and-comment rulemaking, and that the IRS intends to issue further regulations identifying other listed transactions, to be finalized in 2023.
Tip of the DayComparison shop and negotiate . . . Competition is getting tougher in many markets. That's bad if you're a seller, but presents opportunities if you're a buyer. The first way to take advantage of the situation is to comparison shop. Many vendors are looking to boost sales at the expense of margins. Second, don't hesitate to try to negotiate a better deal. You may or may not get it, but you won't know until you try. And vendors who wouldn't budge on price in the past may be more willing to do so now. But price often isn't the only criteria. If you're switching suppliers or anticipate warranty, service or parts issues down the road, make sure the supplier will be around.
December 6, 2022
NewsWork done by municipalities and states for the general good does not produce taxable income. While the road running in front of your home benefits you, it also benefits others on the road. As a result the benefit is not taxable. But if the town cuts a road onto your property and you are the only beneficiary, the value of the road would be taxable income. In Announcement 2022-6 (IRB 2022-51) the IRS reversed a prior ruling that grants made by a county on Long Island to individual homeowners to install advanced septic systems generated taxable income. While the homeowners received the benefit of a new septic system the system just replaced existing, working systems but produced a general good to the county by reducing the amount of nitrogen introduced into the groundwater and the surrounding tidal waterways. The announcement held that the grants were not taxable income and no 1099 reporting was required.
Tip of the DayHome sale exclusion still adequate? . . . When it was first introduced in 1997 the $250,000/$500,000 exclusion of the gain on the sale of a principal residence sounded almost generous. Today, more than a few homeowners have much larger gains. The bad news is the gains are taxable; the good news is that they're taxable at favorable long-term capital gain rates. Taxpayers who have owned the home for many years should keep in mind that deferred gains resulting from the rollover of profits under the old law will be taxable on any sale. For example you bought a home in 1985 for $30,000, sold it for $150,000 in 1995 and rolled over the gain to a new home you paid $150,000. You're now selling that home for $600,000. Your basis is $30,000 and you have a gain of $570,000. (The example assumes you made no capital improvements to the home.) You could be in for a shock on any sale.
December 5, 2022
NewsThe IRS has announced that victims of New York severe winter storm and snowstorm beginning November 18, 2022, now have until March 15, 2023, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA individuals and households affected by the severe winter storm and snowstorm that reside or have a business in Cattaraugus, Chautauqua, Erie, Genesee, Jefferson, Lewis, Niagara, Oneida, Oswego, St. Lawrence, and Wyoming 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 November 18, 2022, and before March 15, 2023, are granted additional time to file through March 15, 2023. This means individuals who had a valid extension to file their 2021 return due 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. Also, under Notice 2022-36, penalties for late-filing certain 2019 and 2020 tax returns, as well as penalties for not reporting certain required information on the Form 1065 or Form 1120-S, are waived or abated if the relevant return is filed on or before February 15, 2023. See IR-2022-185 IRS: Deadline to file 2019 and 2020 tax returns to get COVID penalty relief postponed in declared disaster areas for more details. The March 15, 2023, deadline also applies to the quarterly estimated tax payments, normally due on September 15, 2022 and January 17, 2023, and to the quarterly payroll and excise tax returns normally due on August 1 and 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 partnerships and S corporations whose 2021 extensions ran out on September 15, 2022, and calendar-year corporations whose 2021 extensions ran out on October 17, 2022. For more information, click on the link above.
Tip of the DayBuy or rent property? . . . Many business owners who have had some success think about buying a building for their business. While there are certainly some advantages, there are a number of drawbacks. First, a purchase can use up a lot of precious cash. Hoarding that cash could mean the difference between surviving and going under some day. Second, consider if this will be your location long term. Some businesses can survive 20, 30 or more years in the same location. But others may have to move for any number of reasons. It's not unusual for a doctor or other professional to be at the same location for many years, but a retail store can be materially affected by a shift in demographics over a five or 10 year period. You'd be surprised how many major stores and service businesses don't own the building they're in. AT the very least, you should have some time in business and at the location before buying.
December 2, 2022
NewsSome deadlines can be extended; some cannot. That was the issue in Hallmark Research Collective (159 T.C. No. 6). The Tax Court previously ordered dismissal of this deficiency case for lack of jurisdiction because the taxpayer's Petition was filed late, for purposes of Sec. 6213(a)—i.e., not 90 but 91 days after the IRS mailed its notice of deficiency. After the Supreme Court decided Boechler, P.C. v. Commissioner, 142 S. Ct. 1493 (2022), the taxpayer moved to vacate the Court's earlier dismissal on the grounds that the deadline to file a deficiency case is a non-jurisdictional statute of limitations subject to equitable tolling. The taxpayer requested that this case be reopened to give it an opportunity to show cause for equitable tolling of the limitations period. The Tax Court held the "text, context, and relevant historical treatment", Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 166 (2010), of Sec. 6213(a) confirm Congress's intention that the deadline to file a deficiency case be jurisdictional and that because the deadline of Sec. 6213(a) is jurisdictional, it cannot be equitably tolled. The Court concluded the case was properly dismissed for lack of jurisdiction, and it would not vacate the dismissal.
Tip of the DayCredit card interest up . . . Credit cards have always carried some of the highest interest rates. But among the regular bank cards, some cards have lower rates, and there's often a chance to transfer balances to reduce your rate for six momths to a year. Check out the rates among the cards you have. If you have a high credit score you may be able to get a rate on an existing card lowered by talking to a representative. One approach is to argue you might use the card more if the rate were lower. Finally, avoid store cards if you're carrying a balance. While some may offer deals (e.g., pay within a year and no interest), they generally carry a much higher rate than bank cards, sometimes substantially higher.
December 1, 2022
NewsThe IRS announced (IR-2022-207) that the IRS Office of Chief Counsel partnered with the American Bar Association Tax Section to hold its first centralized National Virtual Settlement Event. This four-day event was inspired by the monthlong virtual event held in March 2021 during the height of the COVID-19 pandemic. Over the course of four days, an exceptional number of cases were settled: a total of 44. There were at least 59 meetings from October 24 through October 27 that included taxpayers, pro bono attorneys and representatives of the IRS Office of Chief Counsel. In contrast to past Settlement Day events that are generally organized locally for taxpayers with a nearby place of trial, this one was organized at the national level to support unrepresented taxpayers who may not be able to attend a local event.
Disability benefits received may be nontaxable, partly taxable, or fully taxable depending on who and how the premiums are paid. If your employer pays the premiums or you pay it with pretax dollars (like 301(k) contributios) the beneifts are fully taxable. If you pay the premiums with after-tax dollars (like writing a check for a contribution to your IRA), the benefits are nontaxable. You could have a mix of taxable and nontaxable benefits in which case only part of the benefits would be taxable. In Paul Christopher Caldwell (T.C. Memo. 2022-51) the taxpayer received disability payments from an insurance company and a W-2 for the taxable amount, but did not file a return. He was enrolled in two plans--one was fully paid by the company, the other paid with pre-tax dollars. The Court held all the benefits were taxable
Tip of the DayGifts to customers and clients . . . Keep in mind that the tax limits the deduction for a client gift to $25. If you need to go higher, the best approach is to take the client to dinner and discuss business. For 2022 you can then deduct the full cost of the meal. In 2023 you're limited to 50 percent as under prior law. If you are planning on giving actual gifts, you might want to consider all the circumstances. An expensive gift could backfire if you've just raised prices by 20 percent. Customers know about inflation, and chances are they have an idea of your costs. You might also want to play down the purchase of a new vacation home or three-wwek cruise.
November 30, 2022
NewsThe IRS announced (Rev. Rul. 2022-23) that interest rates will increase for the calendar quarter beginning January 1, 2023. For individuals, the rate for overpayments and underpayments will be 7% per year, compounded daily, up from 6% for the quarter that began on October 1. Here is a complete list of the new rates:
The Treasury Department and IRS announced (IR-2022-208) guidance providing taxpayers information on how to satisfy the prevailing wage and apprenticeship requirements for enhanced tax benefits under the Inflation Reduction Act. The guidance will be published in the Federal Register November 30, 2022. Notice 2022-61 explains how taxpayers--generally builders, developers, and owners of clean energy facilitie--receive the increased tax credits or deduction amounts by satisfying the wage and apprenticeship requirements as provided for in this notice. For instance, the notice provides guidance on what constitutes a prevailing wage and the determination of qualified apprenticeships with accompanying examples.
Tip of the DayWorker's compensation insurance . . . All states require worker's compensation insurance for your employees. Many states make an exception if you, or you and your spouse, are the owners or sole shareholders and only employees. Worker's compensation insurance can be very expensive, depending on the activities of the employees. In some professions the cost can be a significant percentage of the employee's wages. But you can't not have insurance. First, if an employee sues you for an on-the-job injury and second, many states impose substantial penalties for being uncovered. You should be careful of cut-rate companies and have a way of insuring you always have coverage.
November 29, 2022
NewsThe IRS is again warning (IRS Tax Tip 2022-181) about gift card scammers. The approach is the scammers request payment in the form of gift cards because payment can't be stopped and they're untraceable. But legitimate businesses will require payment by gift card and you can be assured that the IRS or any state taxing authority will accept a gift card as payment. The gift card request should be a red flag that the party is a scammer. Click on the link to the IRS webpage for more information.
You may be able to satisfy your outstanding tax liability by making payments in installments, but you've got to meet certain requirements. In Warren Keith Jackson and Barbara Ann Jackson (T.C. Memo. 2022-50) the IRS settlement officer (SO) in a collection due process hearing and after reviewing the computer transcripts and verifying that all requirements were met denied the taxpayers in installment agreement because they failed to provide the requested financial information and were not current on their estimated tax payment. The Court sided with the IRS and found no abuse of discretion.
Tip of the DayWatch for frequency changes in state tax requirements . . . Most states require filing returns and paying sales tax once a month (some less frequently for those with lower sales). But several states have moved to twice a month filing in the last few years. Watch the filing requirements for your state. You don't want to incur a penalty just because you weren't aware of the change. In some cases your filing frequency can be increased if your sales increase or the filing threshold for more frequent filing has decreased.
November 28, 2022
NewsTax law contains many elections that can reduce your taxes, make filing easier, accelerate deductions, etc. but elections must usually be made by the due date (or extended due date) of the return. Generally, elections can't be made after a return is filed. (As usual, there are a number of exceptions.) In Ronald G. Parks, individually; Ronald G. Parks, as Successor Personal Representative of the Estate of Merle L. Parks; Ronald G. Parks, as Trustee for the Ronald G. Parks Revocable Living Trust dated April 13, 2006; and Madeline M. Parks, (U.S. District Court, E.D. Michigan, Southern Div.) the decedant died September 19, 2003. The estate tax return was due nine months later, May 19, 2004. The estate made a payment toward the liability and requested a six-month extension which was granted. But the actual return wasn't filed until some five years later bin February 2010. The estate contained farmland for which the estate made a special use valuation. The IRS denied the election because the reutnr was not timely. The estate argued that it could make an election within 12 months of the first filing of the return, even if not timely as long as the return was not under examination. The Court sided with the taxpayer, holding the election need only be made on the first filed return.
Tip of the DayCash flow determines if the customer can pay . . . Profits only indirectly determine whether or not a customer will pay you on time. Cash flow is what's important. If you're reviewing the customer's financial statements look for a large cash balance and examine the cash flow statement. Concentrate on how the company is generating funds--is it selling assets to do so? That could be a sign of financial problems. Also examine what the company is doing with its cash. The company may be very profitable but spends it on capital expenditures or pays it out in dividends. What if you can't get financials? Often industry scuttlebutt will be helpful. You may find the company is cash poor because a major customer can't pay it, it's spending heavily on new equipment, the shareholders are taking money out of the company, etc. A project gone sour, such as a new store that is doing poorly or new product that bombed, is another indication of trouble.
November 23, 2022
NewsThe IRS is continuing its transition to the new IR-TCC Application for FIRE for customers who received their TCC(s) prior to September 26, 2021. Customers must take action to keep their existing TCCs active. Beginning September 25, 2022, FIRE TCC holders who submitted their TCC Application prior to September 26, 2021, will need to complete and submit a new application. The IR-TCC Application can be done any time between September 25, 2022, and August 1, 2023. Your TCC will remain active for use until August 1, 2023. Upon completion of your application, active TCCs assigned prior to September 26, 2021, will be added to your application. After August 1, 2023, any FIRE TCC without a completed Application will not be available for e-file.
Tip of the DayDiscounting . . . You may have to offer a discount from your regular price to stay competitive in the current environment, but excessive disounting can damage your margins and become endemic. For some businesses offering a free item or a discount on a second item can be preceived as valuable by the customer and better than excessive discounts. For merchandise it could be a free item, a service, etc. Your stated price doesn't change, or isn't dropped as much, so getting back to your normal price doesn't sound as drastic.
November 22, 2022
NewsThe IRS has issued corrections to T.D. 9967, the final regulations with respect to the low income housing project credits. The correction includes both the final and temporary regulations regarding the average income test.
Notice 2022-62 publishes the 2022 Required Amendments List (2022 RA List) that applies to both individually designed plans qualified under Sec. 401(a) of the Code (qualified individually designed plans) and indvidually designed plans that satisfy the requirements of Section 403(b) individually designed plans. Section 401(b) of the Code provides a remedial amendment period during which a plan may be amended retroactively to comply with the qualification requirements under Section 401(a). Section 1.401(b)-1 describes the disqualifying provisions that may be amended retroactively and the remedial amendment period during which retroactive amendments may be adopted.
Tip of the DayGet cash upfront . . . With interest rates on business loans rising, for some businesses that do project work it may be time to ask for an advance upfront, if you don't already do so. It should be at least enough to cover materials and out-of-pocket expenses. For longer projects, progress payments may be warranted. Each industry is different. Progress payments are standard in construction, but may not be for other businesses with shorter-term projects. And you've got to judge what your competitors are doing. If you need to stay competitive, you might reduce the price of the job. Upfront and progress payments could be especially worthwhile if we do encounter a recession. If a customer becomes a slow- or no-pay at least you'll have covered some of your costs. Discuss it with your accountant or financial advisor.
November 21, 2022
NewsThe Department of Justice has announced a second attorney and two tax professionals have been indicted in the $1 billion Garza tax shelter scheme. The alleged mastermind of the scheme, attorney Joseph Garza, was previously indicted on 18 counts of wire fraud, one count of conspiracy to commit wire fraud, and 22 counts of aiding and assisting in the preparation of fraudulent income tax returns. The superseding indictment added a charge of conspiracy to defraud the United States. According to the court documents, Mr. Garza allegedly directed his clientele to use hand-picked tax professional--including Mr. McDonnell, Mr. Richardson, and Mr. Fenton who helped him illegally shelter their otherwise taxable income. Mr. Garza allegedly charged clients a percentage of the predetermined amount of money they had chosen to shelter from taxes. The defendants allegedly created multiple shell companies including shell "services" companies and shell "investments" companies--to create a circular flow of funds to help clients avoid paying taxes. These shell companies purported to provide services to the clients' businesses or to serve as family investment vehicles, but actually had no legitimate purpose other than to move money. The defendants allegedly created sham operating agreements and service agreements, fictious invoices, and false private annuity agreements designed to give the companies the appearance of legitimacy and conceal the scheme from the IRS.
Tip of the DayFocus on the money . . . It's not unusual for projects to take a side road. The new product that takes longer to get to market because an engineer or marketing person added features or items that has little relevance, the IT project that gets more and more complicated as features are added just because there's a possibility they may be helpful or just because one manager wants it, etc. At best the added items can slow development time, at worst it can scuttle the project. As items are added to a project, ask will it eventually enhance revenue or cut costs. If neither, it may be best to leave them out.
November 18, 2022
NewsRevenue Procedure 2022-39 obsoletes Rev. Proc. 94-69 and prescribes special procedures for eligible taxpayers to file a qualified amended return in accordance with Reg Sec. 1.6664-2(c)(4)(ii). This revenue procedure also sets forth procedures for eligible taxpayers to show additional tax due or make adequate disclosure with respect to an item or a position on a previously filed return to avoid imposition of the accuracy-related penalties describted in Secs. 6662(b)(1) and 6662(b)(2).
Tip of the DayRepair or replace? . . . Years ago, unless the equipment was old, the answer generally was to repair. Large household appliances such as stoves, washing machines, refrigerators, etc. routinely lasted 20 years. Office desks were heavy wood or metal and could go much longee. Manufacturing equipment might need a periodic motor, belt, or bearing replacement, but could last 20, 30 or more years. Now technological and functional obsolescence can occur within 10 years or less. Many equipment manufacturers don't supply parts after 10 or 15 years. It probably makes sense to repair a unit that has a relatively low concentration of high-tech components, can be repaired relatively cheaply, will have a significant life extension after repair, with a relatively high cost and where a new unit won't provide significantly better performance. Repairing a $500 laptop doesn't make much sense unless you've got a contract or warranty. The cosdt to repair can be half the cost of a new one and a new one is likely to provide much better performance. On the other hand, repairing a skid-steer for $7,000 is a fraction of the cost of even a good used one,
November 16, 2022
NewsThe IRS announced that victims of Illinois severe storm and flooding occurring between July 25 and 28, 2022, now have until February 15, 2023, to file various individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households affected by the severe storm and flooding that reside or have a business in St. Clair 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 July 25, 2022, and before February 15, 2023, are granted additional time to file through February 15, 2023. This means individuals who had a valid extension to file their 2021 return due 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. Also, under Notice 2022-36, penalties for late-filing certain 2019 and 2020 tax returns, as well as penalties for not reporting certain required information on the Form 1065 or Form 1120-S, are waived or abated if the relevant return is filed on or before February 15, 2023. IR-2022-185, provides details on the IRS: Deadline to file 2019 and 2020 tax returns to get COVID penalty relief postponed in declared disaster areas. The February 15, 2023, deadline also applies to the quarterly estimated tax payments, normally due on September 15, 2022 and January 17, 2023, and to the quarterly payroll and excise tax returns normally due on August 1 and 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 partnerships and S corporations whose 2021 extensions ran out on September 15, 2022, and calendar-year corporations whose 2021 extensions ran out on Oct. 17, 2022. Penalties on payroll and excise tax deposits due on or after July 25, 2022, and before August 9, 2022, will be abated as long as the tax deposits were made by August 9, 2022. Go to IRS Annnounces Tax Relief for Illinois Severe Storm and Flooding.
The IRS is reminding (IR-2022-199) taxpayers that the last day to file 2021 returns using the IRS Free File system is tomorrow, November 17.
Tip of the DayCapital hungry . . . Some businesses can be proiftable, but require large amounts of capital to get started. Getting started as a psychologist may require little capital; a dentist starting out has a big investment in tools, supplies, furniture, etc. Even the psychologist may require capital to live on while the practice grows enough to support itself. A significant number of businesses fail for lack of capital. And some businesses are only capital hungry during the start-up phase while some continue to require significant investments for many years. That can be particularly true for a fast growing enterprise. Such a business can require regular cash infusioons through equity capital or loans.
November 16, 2022
NewsThe IRS has authority to issue regulations, notices, etc., but it has to follow certain procedures including asking for public comment. In Green Valley Investors, LLC, Et Al., Bobby A. Branch, Tax Matters Partner (159 T.C. No. 5) the taxpayers petitioned the Tax Court challenging the IRS's adjustments in notices of final partnership administrative adjustment regarding charitable deductions related to syndicated conservation easement transactions listed under IRS Notice 2017-10. The parties filed Cross-Motions for Partial Summary Judgment seeking summary adjudication as to the imposition of penalties in these consolidated cases. The taxpayers principally contend that Sec. 6662A penalties cannot be imposed for two reasons: (1) the IRS seeks to improperly impose such penalties retroactively and (2) the IRS failed to comply with the notice-and-comment rulemaking procedures of the Administrative Procedure Act (APA) when issuing Notice 2017-10. The IRS contended that Notice 2017-10 was properly issued without notice-and-comment rulemaking and that he is entitled to partial summary judgment. The Court held Notice 2017-10 is a legislative rule, improperly issued by the IRS without notice and comment as required under the APA. The Court also held that Notice 2017-10 would be set aside by the Court and the taxpayers Cross Motions for Summary judgment granted in part pohibiting the imposition of Sec. 6662 penalties in the consolidated cases.
Tip of the DayWhat happened to tech stocks? . . . Too much optimism is one issue. Investors often price growth stocks based on future earnings. As the market heats up, the future can get further out. There can be so much optimism built in that on the first sign of weakness, the stocks collapse. The second factor working here is the pandemic, or rather the end of it. At the height of the pandemic all sorts of markets shifted--people worked from home, shopped on line, exercised at home, aioded restaurants, etc. Many companies assumed these trends would continue. Many did, but at a slower pace. Some fizzled. Many markets were misjudged. When your sales growth drops from 50 percent to 20 percent, forecasts go out the window. While prepandemic a company might be thrilled with 20 percent growth, the drop from 50 percent can be devastating.
November 15, 2022
NewsThe statute of limitations for most federal tax cases is three years. If the statute is about to run and there's still a dispute, the IRS may ask the taxpayer to sign a Form 872, Consent to Extend the Time to Assess Tax. In Christian Renee Evert (T.C. Memo. 2022-48) the period of limitations would be expiring soon and the IRS Appeals Officer advised the taxpayer that if she wanted her position considered she would have to provide additional documentation and it would be in her best interest to sign the Form 872 to extend the period because additional time allows [the taxpayer] to provide further documentation to support [his or her] position [or] request an appeal if [he or she does] not agree with the examiner's findings. The taxpayer signed the form but after her Tax Court cases was docketed, moved to amend her Petition to argue that she had signed the Form 872 under duress, that the Form 872 is accordingly invalid, and that the IRS failed to timely mail the notice of deficiency before the period of limitations for assessment of tax for tax year expired. The Court granted the taxpayer's motion, but found the taxpayer did not show the Form 872 was filed under duress. The Court also found the Appeals Officer did not speak with the taxpayer regarding the consent form, but mailed it along with the standard written explanation.
Tip of the DayEvaluate based on total price . . . While advertising a monthly payments for an item rather than the total cost is not new, it's becoming more common, particularly with products that have had more than nominal price hikes. Using the monthly amount as a guide to affordability is reasonable, but if you're comparing products or deciding whether or not to buy, you need to use the total price. That goes for personal as well as business purchases. And don't forget to include all the payments when analyzing your monthly cash outlay--any upfront money, the monthly payments and the number of months and any payments at the end. For business and large consumer purchases, check for any service fees, or additional charges.
November 14, 2022
NewsAnnouncement-2022-23 notifies taxpayers of new credit amounts for calendar year 2022 for the renewable electricity production credit under Sec. 45 in the case of any qualified facility placed in service after December 31, 2021. Because the Inflation Reduction Act changed the manner in which the Sec. 45 credit amounts are calculated in the case of any qualified facility placed in service after December 31, 2021, this announcement supplements the Sec. 45 credit amounts as originally published in Notice 2022-20. In the case of any qualified facility placed in service before January 1, 2022, the credit amounts published in Notice 2022-20 remain unchanged.
Tip of the DayConsumers cutting back . . . There's little doubt now that a broad range of consumers are cutting back on expenditures. Inflation is noticeable and being felt. Some are buying less, switching to cheaper brands, or simply doing without. While the effect has hit wealthier families too, the impact has been less drastic. Keep that in mind in your forecasts.
November 10, 2022
NewsThe IRS has announced (IR-2022-197) that in addition to the more than 4,000 people recently hired to fill critical customer service representative positions, the Service is now seeking over 700 new employees to help taxpayers at Taxpayer Assistance Centers across the country. This increase in staffing is part of much wider IRS improvements enabled by the Inflation Reduction Act funding approved in August 2022, and additional updates on the implementation of the landmark 10-year legislation will be provided soon. These important positions have highly competitive pay and benefits including on-the-job training, opportunities for advancement, health and life insurance, and a federal retirement.
Tip of the DayBoost your credit score . . . One of the negatives on your credit score is a high percentage of the credit used. For example, Sue has a $5,000 limit on her card. Normally her balance is less than $1,000 and she pays the full amount when due. But in November she buys a new stove and refrigerator bringing her balance to $4,300. That impacts her credit score. Paying off the balance in full when due will help. You could even improve your interim rating by making payments on the balance before you even receive the bill.
November 9, 2022
NewsYou may be able to avoid joint liability on a tax return with a spouse if you can meet certain requirements. Called innocent spouse relief it protects a spouse from being burdened with a tax liability for which he or she had no knowledge and did not benefit from. In Gregory J. Podlucky and Karly S. Podlucky (T.C. Memo. 2022-45) the Court found the husband extracted more than $30 million from a corporation he controlled to purchase for himself and his wife luxury jewelry and a mansion, among other things. In 2009 petitioners were indicted in the U.S. District Court for crimes including mail fraud, money laundering, and tax evasion. The Court found the wife knew, or had reason to know, about the understatement of tax. The test for reason involves a number of factors including the existence of expenditures that are lavish or unusual when compared to the family's past income levels. The wife was directly involved in some of the transactions and signed checks for more than $6 million. In addition, the jewelry purchases far exceeded the taxpayer's annual income. Finally, the Court also found the wife received significant benefit from the additional income.
Tip of the DayWhat's the cost of a bounced check? . . . Your bank may charge, $25 or $35 and the check recipient may charge you a similar amount. But the price can be considerably higher. The federal and some states can charge as much as $100 a check or 1 percent of the check amount. And giving your vendors a bad check will most likely reduce your credit standing. In some cases it can result in a lack of credit or, in the case of tight supply, having the vendor give priority to another customer. If the lack of funds was unintentional, explaing the situation to your suppliers as soon as possible. If you've had a good tack record, a first mistake is usually forgiven.
November 8, 2022
NewsThe Treasury Department and IRS have announced the expansion of one of their programs for approving retirement plans. The IRS will now allow 403(b) retirement plans, which are used by certain public schools, churches and charities, to use the same individually designed retirement plan determination letter program currently used by qualified retirement plans. Revenue Procedure 2022-40 details this expansion and includes other changes affecting individually designed retirement plans.
When it comes to following procedures, the IRS is usually pretty good. In Edgerton Might and Eulalee Mighty (T.C. Memo. 2022-44) the taxpayers failed to challenge a notice of deficiency in Tax Court. When the IRS attempted to collect the outstanding amount the taxpayers sought to dispute the amount of the liability. The case was assigned to a settlement officier (SO) where the SO verified that petitioners' tax liability for 2014 had been properly assessed, that the accuracy-related penalty had received the requisite supervisory approval, and that all other legal and administrative requirements had been satisfied. The SO gave the taxpayers time to complete a financial statement form and waited 4 months to hear from them. The Court sided with noting the taxpayers could not challenge their liability in a collection due process hearing. The Court noted the IRS mailed a valid notice of deficiency to the taxpayers' last known address and that all administrative procedures had been properly followed.
Tip of the DayScam or just heavy marketing? . . . This is the time of the year for open enrollment for Medicare and many insurance companies are seeking to get Medicare recipients to switch to advantage plans. While some of the calls are from insurance companies but some are from scammers. The problem is it can be hard to spot a scam seeking personal data including your Medicare information or your identity or looking to steal your money and a legitimate insurance company looking to make money. Advice that applies to other scams applies here as well-don't rush into any decision. And don't believe the info on yur caller ID. Spoofing is now virtually universal. For more information go to the Federal Trade Commission Consumer Advice site.
November 7, 2022
NewsThe IRS Independent Office of Appeals announced (IR-2022-195) the release of its focus guidePDF for fiscal year 2023. Appeals is taking important steps to expand communications with external stakeholders and to improve taxpayer access to Appeals. Promoting transparency and taxpayer access helps Appeals fulfill its mission to resolve tax disputes in a fair and impartial manner without the need for litigation. The focus guide outlines the taxpayer service initiatives you can expect over the coming year, including:
Partnerships and S corporations with foreign activities may be required to file Forms K-2 and K-3. The IRS has released draft instructions that contain exceptions that may allow some entities to avoid filing Forms K-2 and K-3.
Tip of the DayBusiness identity theft . . . Everyone is worried about their personal identity being stolen. But there are ways to steal your business identity. You want to make sure your website is protected. Check the status regularly and talk to your webmaster or hosting company. They should have specific ideas. You should also protect your name. If you're doing business under an assumed name e.g. Madison Company, you generally have to register the name with your county or state. If you incorporate or file as an LLC your name is registered with the state and if another company tries to use it, or something similar, the state will normally reject it in a filing. But there's no guarantee. You set up an LLC named Lakeside Occupational Therapy LLC. The state may allow someone to register Lakeside Physcial Therapy LLC. And there's nothing to prevent someone from registering Lakeside Occupational Therapy LLC in a bordering state. You might want to register in that state just to prevent someone from using the name. It could be cheap insurance. Some companies that didn't take the precaution found themselves paying hundreds of thousands of dollars to buy back the name. You can also protect yourself with a logo that you can register as a trademark. Just make sure you use the logo with your name regularly. Talk to your attorney.
November 4, 2022
NewsThe reporting threshold for when a third party settlement organization (e.g., credit card company, PayPal, etc.) is required to file a Form 1099-K is lowered to 1 transaction and $600. Since many more taxpayers will not receive these forms, the IRS has set up a webpage, Form 1099-K Frequently Asked Questions. This page was recently updated. The page also contains links to related topics.
The IRS Criminal Investigation division has released its FY 2022 Annual Report highlighting the results of the CI dvision. In fiscal year 2022, IRS Criminal Investigation initiated more than 2,550 criminal investigations, identified over $31 billion from tax and financial crimes, and obtained a 90.6% conviction rate on cases accepted for prosecution. The IRS-CI FY22 Annual Report, details these statistics, as well as important partnerships and significant criminal enforcement actions from the past fiscal year, which began Oct. 1, 2021, and ended Sept. 30, 2022. The division is involved in more than general tax fraud, it also investigates employment tax fraud, money laundering, public corruption, healthcare fraud, narcotics, and related crimes.
Tip of the DayFinancial disability . . . While the term can take on a number of meanings, the IRS imparts a specific one. Basically, you may be able to avoid penalties for late filing and some other penalties if you can show that you were temporarily or permanently disabled. But, what the IRS giveth, the IRS taketh away. If you're giving extra time to file, the statute you of limitations will also be extended. And qualifying is not as easy as it may sound. You've got to show more than a bad head cold. And you're going to need a doctor's sign off. Hospitalized for an extended period of time, undergoing debilitating chemo therapy, or severe mental issues. If you're married, it's assumed your spouse could file. If she was your primary caregiver that could sway the IRS. And the IRS is likely to take into account your tax situation. Got a W-2 and a couple of 1099s? Tough to argue you couldn't file. On the other hand, if your return is complex, such as including rental properties, a business, etc. you'll get more sympathy. Finally, if you're able to do other work, it's expected you'd be able to file your return. For example, you're getting chemotherapy, but you're also running your business or a number of rental properties. Talk to your tax adviser.
November 3, 2022
NewsThe tax Code definition of income is very broad, but there are some enumerated exceptions. In Tracy Renee Valentine (T.C. Memo. 2022-42) the taxpayer received two types of distributions from the Department of Veterans Affairs for her time in the Army. The first distribution was disability pay for a service-related injury. Section 104(a)(4) provides the general rule that amounts received as a pension, annuity, or similar allowance are not included in gross income when they arise from personal injuries or sickness resulting from active service in the armed forces of any country. Both the taxpayer and the IRS agreed that distribution was not taxable. The second distribution was in dispute. The Court noted A retired service member may receive both a disability pension from the VA (which is excludable from income) and retirement distributions (such as a service pension) from her respective branch of the armed forces; but payments under retirement plans should generally be included in income regardless of the existence of a VA disability determination, except where certain exceptions may apply. A retired service member who did not receive a disability determination from the VA and who is not currently receiving disability benefits may exclude from gross income a portion of her retirement benefits under Section 104 if he or she can prove that they would qualify for a disability determination from the VA. Similarly, a service member who receives a retroactive disability determination by the VA may exclude from gross income a portion of the retirement benefits they received during the retroactive period equal to the percentage of their disability determination (if she did not already exclude them prior to the determination). The Court noted the taxpayer did not show she had a "combat-related injury". The VA used the term service-connected disability. The Court held the retirement distributions could not be excluded from income.
Tip of the DayAudit may not involve all issues . . . The IRS just examined your tax return and made an adjustment to your charitable contributions, but didn't question your income and expenses on Schedule C, your consulting business. That doesn't mean you're off the hook on those deductions you took on your business. The IRS could question those expenses in a subsequent examination of the return. It's not unusual for an examination to focus on just one area and ignore others.
November 2, 2022
NewsRunning an illegal scheme can have tax as well as legal consequences. In Michael T.Sestak (T.C. Memo. 2022-41) the taxpayer worked for the U.S. Department of State and provided nonimmigrant visas to the U.S. in exchange for compensation. The amounts grew to the point where he purchased land in Thailand in order to use the cash. The scheme was uncovered and the tapayer pleaded guilty to several offenses. As part of the plea agreement he he executed a preliminary consent order of forfeiture imposing a forfeiture money judgment of some $6 million in favor of the United States, which included forfeiture of his real estate holdings in Thailand and other assets held by his co-defendants. Should the sale exceed a certain amount, 50 percent of the xcess was to be used to settle his tax debts. The taxpayer argued that the liquidation of his real estate holdings in Thailand was not a forfeiture, because the properties were located outside of the United States and, therefore, outside the jurisdiction of the U.S. court system. He contended that because the proceeds from the sales of his real estate holdings were voluntarily transferred at a loss to the United States as part of his plea agreement, he is entitled to deduct the loss from his bribery proceeds. Moreover, he claimed the holdings were an investment and since he planned to rent them out the liquidation should be a business loss. Neither the IRS or the Tax Court agreed with his position. First, if the loss were allowed it would be as a capital loss. Second, and more importantly, Federal courts consistently have disallowed loss deductions where the deduction would frustrate a sharply defined federal or state policy. Finally, the Court reasoned it could not be claimed as a business deduction. The Court also found the taxpayer liable for the fraud penalty. In addition, the Court found the taxpayer liable for the civil fraud penalty.
Tip of the DayReverse mentoring . . . The idea behind mentoring has always been senior employees teaching junior ones. But senior employees can often learn from their juniors. That's especially true in certain technical fields where the science is always changing. Employees with advanced degrees may have just left school after doing cutting edge research. And in even nontechnical jobs younger employees are often much more adept at using the latest technology.
November 1, 2022
NewsThe IRS has recently released a number of new or updated publications and forms. Here are some of interest:
The IRS has also released Publication 1415, Federal Tax Compliance Research Tax Gap Estimates, Publication 5364, Individual Income Tax Gap Estimates Executive Summary and Publication 5360, Tax Gap Map. Forms and publications are listed in numerical order (publications and forms are in the same database), but you can resort by clicking on the Revision Date or Posted Date column. The posted date is the more useful approach. Go to Forms, Instructions and Publications.
Tip of the DayS corporation losses . . . Just because you have a shareholder in an S corporation doesn't mean you can automatically take any losses on your personal return. First, you have to have sufficient basis--either equity or debt--and you must be "at-risk" with respect to that amount. Then you must materially participate in the activity. You can meet the final requirement in several different ways, but generally you must participate in the day-to-day management of the business. If you don't meet all the tests those losses are suspended until you do or you dispose of all of your interest in the stock. If you switch from S to C corporation status, the losses are suspended until the entity is once again an S corporation. Check with your tax advisor before making any switch. You may have other options.
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