Small Business Taxes & Management

News and Tip of the Day

Small Business Taxes & ManagementTM--Copyright 2014-2015, A/N Group, Inc.

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January 26, 2015


If a business fails to pay the withheld taxes on employees (or other trust fund taxes), the IRS can recover from any responsible person. In John Chase Lee (144 T.C. No. 3) the IRS filed an notice of federal tax lien (NFTL) and sent the taxpayer a notice of lien filing and a notice of intent to levy with respect to trust fund recovery penalties assessed against the taxpayer. The taxpayer request a collection due process hearing. In the notice of determination sent to the taxpayer after the hearing the Appeals Officer sustained the IRS's filing of the NFTL and the proposed levy. The taxpayer petitioned the Tax Court for review. The IRS determined in a supplemental notice of determination the taxpayer could not challenge the underlying tax liabilities because he had previously had a opportunity to do so in response to a Letter 1153. Because the IRS did not mail the Letter 1153 to the taxpayer's last known address, the IRS was required to serve Letter 1153 on the taxpayer personally in order for the assessment to be valid. The taxpayer contended the letter was never served. The IRS had a motion for summary judgment in which it contended that there were no disputed issues of material fact. The Court held the IRS's motion for summary judgment be denied because the issue of whether the Letter 1153 was properly issued to the taxpayer by personal service remained a genuine dispute as to a material fact for trial. The Court also held the issue of whether a Letter 1153 was properly issued by mailing or personal service is a requirement of applicable law or administrative procedure that the Court would review without regard to whether the taxpayer raised the issue at the collection due process hearing.

Tip of the Day

Intercompany pricing . . . The IRS is extremely concerned what a domestic parent charges a foreign subsidiary for goods and services (and vice versa). That's because inappropriate pricing can shift profits to the foreign subsidiary where profits may be taxed at a lower rate. If you do business in multiple states, don't be surprised if a state challenges intercompany pricing. Some years ago one company put the company's logo in a Delaware corporation and charged stores in other states a high fee for the use of the logo, shifting profits to Delaware where they escaped taxes. A number of states changed their laws to stem the revenue loss. There's nothing wrong with shifting profits, but just make sure your transactions are at arms' length.


January 23, 2015


The Treasury Inspector General for Tax Administration (TIGTA) and the IRS are warning taxpayers about aggressive and threatening phone calls by criminals impersonating IRS agents. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. Scammers are able to alter caller ID numbers to make it look like the IRS is calling. They use fake names and bogus IRS badge numbers. They often leave "urgent" callback requests. They prey on the most vulnerable people, such as the elderly, newly arrived immigrants and those whose first language is not English. Scammers have been known to impersonate agents from IRS Criminal Investigation as well. The Treasury Inspector General for Tax Administration (TIGTA) has received reports of roughly 290,000 contacts since October 2013 and has become aware of nearly 3,000 victims who have collectively paid over $14 million as a result of the scam, in which individuals make unsolicited calls to taxpayers fraudulently claiming to be IRS officials and demanding that they send them cash via prepaid debit cards. Keep in mind the IRS will never:

For more information, see the complete IRS News Release.

Drafting errors, often called scrivener's errors aren't as uncommon in legal documents as you might imagine. Sometimes the error is so obvious that a court quickly determines what was written was not intended. In Hartland Management Services, Inc., et al. (T.C. Memo. 2015-8) the IRS prepared three Forms 872, Consent to Extend the Time to Assess Tax but instead of indicating the disputed years on the forms, the IRS wrote in the current tax years. The error went unnoticed by the taxpayers, who signed the form, and the IRS area director. The IRS subsequently prepared three additional Forms 872 with the correct years and requested the taxpayers to sign them; they did not. The parties agreed the three-year period of limitation had expired before the IRS sent the notices of deficiency. The IRS argued that the errors on the initial signed forms were scrivener's error and that the parties' unawareness of these errors shows a mutual mistake, and that the forms should be reformed to apply to the disputed years. The Court noted that to reform Form 872, there must be "clear and convincing evidence" as to the parties' intent. The Court noted that the taxpayers' counsel was a tax attorney and CPA and is presumed to be knowledgeable about tax law and procedure. The Court also noted that the parties did not intend to extend the period of limitation for the erroneous years. Not only were those years open, they did not match the taxpayers'. The Court concluded the forms contained a mutual mistake. The IRS also argued that the continued actions with respect to one of the taxpayer's tax year showed that the taxpayers believed the period of limitations to still be open for the disputed years. The Court sided with the IRS and held the initial Forms 872 could be reformed to conform to the intent of the parties.

Tip of the Day

Mail, not e-mail . . . E-mail is fast and convenient and works well for almost all applications. But there are times when regular mail should be used. The first invoice to a customer can be sent by e-mail; same for the first reminder. After that you should consider regular mail or even certified. You want to make sure the customer is getting the mail, and if not, why not. Keep in mind that many contracts still require that notifications be sent by regular mail. For example, exercising the option to renew a lease.


January 22, 2015


The filing season has officially begun--at least for federal purposes. The IRS has announced that modernized e-File will conduct daily maintenance from 4:00 a.m. to 5:00 a.m. Eastern Standard Time, until further notice. At this time, that's unlikely to affect many taxpayers.

The IRS has released proposed regulations (REG-153656-03) concerning the application of Sec. 41, credit for increasing research activities. The proposed regulations provide guidance on computer software that is developed by (or for the benefit of) the taxpayer primarily for internal used by the taxpayer under Sec. 41(d)(4)(E).

The IRS has recently released updates of a number of forms, instructions and publications. Some of the more important ones include:

Pub. 3 Armed Forces' Tax Guide
Pub. 527 Residential Rental Property
Pub. 530 Tax Information for Homeowners
Pub. 590-A Contributions to Individual Retirement Arrangements (Pub. 590 has been split into two-590-A and 590-B)
Pub. 590-B Distributions from Individual Retirement Arrangements
Pub. 936 Home Mortgage Interest Deduction
Pub. 5187 The Health Care Law: What's New for Individuals and Families
Pub. 5199 Tax Preparer Guide to Identity Theft
Pub. 5027 Identity Theft Information for Taxpayers
Pub. 5201 The Health Care Law and Your Taxes

Form 1116 Foreign Tax Credit (Individual, Estate, or Trust)
Form 4562 Depreciation and Amortization
Form 5500-EZ Annual Return of One Participant Retirement Plan
Form 5695 Residential Energy Credits
Form 5884 Work Opportunity Tax Credit
Form 8582 Passive Activity Loss Limitations

Inst 1041 U.S. Income Tax Return for Estates and Trusts
Inst 4562 Depreciation and Amortization
Inst 8941 Credit for Small Employer Health Insurance Premiums
Inst 8960 Net Investment Income Tax for Individuals, Estates, and Trusts
Inst 8962 Premium Tax Credit
Inst 8983 Statement of Specified Foreign Financial Assets

Tip of the Day

Form 1099 series . . . It's not too early to start assembling your data and secure any forms and software to file Forms 1099. Because January 31st falls on a Saturday this year, the forms don't have to be mailed to recipients until February 2. Most businesses will have to file Form 1099-MISC for payments for services to nonemployees. Don't forget, that can include work done on the company car or truck, the tech who got the virus out of the computer, etc., not just the temporary office workers. The cost of parts and materials is included in the amount. Thus, if you paid Madison Auto, LLC $625--$85 for labor and $540 for parts--you owe it a 1099. The reporting threshold is $600 or more. Use 1099-MISC to report rents paid of $600 or more. Borrowed money from a shareholder, or a relative? If the interest paid is $10 or more you'll have to send them a 1099-INT. The penalties for failure to file, or filing late varies but can be $100 per information return.


January 21, 2015


President Obama has proposed tax cuts for middle-class taxpayers that would be offset by higher taxes on those in the highest 1 percent of income. The proposal includes a top capital gains rate of 28% for taxpayers with incomes over $500,000 and the elimination of a step-up in basis for inherited assets. Middle-class cuts include a $500 credit for two-earner families and increasing the child credit for children under 5 to $3,000. Considering the current makeup of Congress, it's highly unlikely that these proposals will gain any traction.

The President has declared Marion county in Mississippi eligible for federal disaster assistance as a result of severe storms and tornadoes on December 23, 2014. Taxpayers who sustained losses may deduct them on their 2013 federal tax returns.

In American Airlines, Inc. (144 T.C. No. 2) the taxpayer had a dispute with the IRS with respect to the classification of workers on certain international flights. The IRS argued that the Tax Court did not have jurisdiction because the Tax Court lacks jurisdiction because the Revenue Act of 1978 section 530 is inapplicable with the IRS does not make a determination of worker classification. The Tax Court held that the IRS made a determination which provides a basis for the Court's jurisdiction to determine whether the taxpayer is entitled to relief under section 530 with respect to remuneration paid to the taxpayer's foreign flight attendants by its foreign branches.

Tip of the Day

Entity liable for filing even if dormant . . . You may have set up an S or C corporation, partnership, LLC and never "activated" it. The entity has no assets, no bank account, no income or expenses. You'll still have to file a return, even if there's no tax due. For federal purposes you can be liable for a penalty based on the number of K-1s and the number of months a 1065 (partnership return) or 1120S (S corporation return) is late. Many states have similar penalties. In the case of a single member LLC (which would file a Schedule C or Schedule E with a Form 1040) you'll escape a federal penalty, but you may have a minimum fee or tax at the state level. Check the rules. You don't want to incur a significant penalty for failing to pay a $50 annual fee.


January 20, 2015


The IRS and the Free File Alliance have announced the launch of Free File, which makes brand-name tax software products and electronic filing available to most taxpayers for free. Free File software can help taxpayers with tax preparation, including the health care law that will affect almost everyone. People can use Free File software immediately but e-filed returns will not be transmitted to the IRS until Tuesday, January 20, when the filing season officially begins.

Rev. Proc. 2015-13 (IRB 2015-5) updates and revises the general procedures under Sec. 446 to obtain the advance and automatic consent to change a method of accounting. This procedure is effective for Forms 3115 filed on or after January 16, 2015, for a year of change ending on or after May 31, 2014. This revenue procedure and Rev. Proc. 2015-14 are of particular interest to taxpayers who are changing a method of accounting for depreciation or amortization.

Rev. Proc. 2015-14 (IRB 2015-5) provides the list of accounting methods to which the automatic change procedures in Rev. Proc. 2015-13 apply. This revenue procedure is effective for a Form 3115 for a year of change ending on or after May 31, 2014, that is filed under the automatic change procedures of Rev. Proc. 2015-13.

Revenue Procedure 2015-15 (IRB 2015-5) provides the 2015 monthly national average premium for qualified health plans that have a bronze level of coverage for taxpayers to use in determining their maximum individual shared responsibility payment under Sec. 5000A(c)(1)(B) of the Code and Sec. 1.5000A-4 of the Income Tax Regulations. The monthly national average premium for Bronze Plans offered through Exchanges is $207 per individual or $1,035 for a shared responsibility family with five or more members. Revenue Procedure 2014-46 is superseded.

Notice 2015-08 (IRB 2015-6) provides guidance on Section 45R for certain small employers that cannot offer a qualified health plan (QHP) through a Small Business Health Options Program (SHOP) Exchange because the employer’s principal business address is in a county in which a QHP through a SHOP Exchange will not be available for the 2015 calendar year (the counties, which are listed in the notice, are all in Iowa).

Tip of the Day

Gains and losses on property sales . . . If you own business or rental property computing your basis for gains and losses can be more complex than you think. You could have three different bases--one for regular federal income tax purposes, one for alternative minimum tax purposes, and a third for state tax purposes. Why? For one, because you may have used three different depreciation methods. Some states don't allow the same depreciation rules as the IRS. And you may have had to use a different method for alternative minimum tax purposes. Generally, that means a smaller gain or larger loss for state or AMT purposes. This usually isn't a problem if you've been using the same software since you acquired the asset. In that case the software should (but check to make sure) handle the issue. But if you've switched programs along the way, you may have a problem.


January 16, 2015


Senator Orrin G. Hatch (R-Utah), the new Senate Finance Chairman has indicated he will form five bipartisan working groups as a prelude to changing the Code. The plan is to complete a package by the end of 2016.

Notice 2015-6 (IRB 2015-5) provides that IRS Form 8922, Third-Party Sick Pay Recap, must be used by third parties and employers to report total payments of certain sick pay paid by third parties on or after January 1, 2014. In particular, form 8922 must be used for filing "third-party sick pay recaps" to reconcile the reporting of sick pay paid by a third party on behalf of employers to employees in situations in which the liability for the Federal Insurance Contributions Act (FICA) taxes on the sick pay is split between the employer and the third party under applicable regulations.

National Taxpayer Advocate Nina E. Olson has released her 2014 annual report to Congress, which expresses concern that taxpayers this year are likely to receive the worst levels of taxpayer service since at least 2001 when the IRS implemented its current performance measures. The report recommends that Congress enact a principles-based Taxpayer Bill of Rights, adopt additional safeguards to make those rights meaningful, and provide sufficient funding to make the “Right to Quality Service” a reality. In the preface to the report, Olson emphasizes four points:

For the complete report go to

Tip of the Day

When does a sale tax place for real property? . . . Technically it's the earlier of (1) the date title is transferred or (2) the date the economic burdens and benefits of ownership shift to the buyer. In most cases the dates are the same, but not always. For example, Fred sells a parcel of farmland to Sue. Papers are signed and money changes hands, but there's a problem in the title that prevents transfer. Sue wants to start planting before it's too late. Fred agrees to let Sue plow and plant the field and store her equipment in the barn. While there might be other facts to consider, the sale would be considered to take place when Sue takes over.


January 15, 2015


John Koskinen, IRS Commissioner, has advised employees that, as a result of budget cuts, the Service may need two furlough days in the current fiscal year. Because of required increases and inflation of some $250 million, the $346 million budget cut is more like a reduction of some $600 million. Koskinen went on to indicate that any if the IRS is forced to close for a time, it would do so near the end of the fiscal year. Taxpayers can expect a lower level of telephone service, a slightly longer wait for refunds on paper filed returns, and a reduced audit level. During fiscal 2014, 64 percent of telephone callers were able to get through; that could drop to 50 percent with increased wait times. The hiring freeze will be extended and a loss of 1,800 enforcement personnel through attrition is anticipated during the current fiscal year.

The IRS reported that it will be issuing identity protection personal identification numbers (IP PINs) to 1.5 million individuals in 2015. Tax identity theft victims who opt in the program get a new IP PIN every year, with the numbers available online after February 2. The IP PIN is a lifetime commitment. Once a taxpayer is in the program, the individual cannot opt out.

The IRS has issued a new Health Care Tax Tip, HCTT-2015-01. The tip deals with changes to Form 1040 and the new Form 8965, Health Coverage Exemptions and 8962, Premium Tax Credit. For this and previous tips go to

Tip of the Day

Basis in property purchased through a will . . . Sometimes a person will specify in their will that one of the beneficiary's can purchase a property for a certain fixed amount, often a substantial discount from the fair market value, from the estate. While that can be a solution to equalizing distributions to heirs or to insure an heir will get a particular asset, it can be expensive from a tax standpoint. If the heir simply inherits the property his basis for gain or loss will be the fair market value on the date of death. In addition, his holding period will include that of the deceased. On the other hand, the heir's basis in a bargain purchase will be what he paid for the property and his holding period begins on the date of purchase. That would result in a larger gain (or smaller loss) on the sale of the property. There's often other ways to achieve the intended result. Talk to your attorney or tax advisor.


January 14, 2015


Notice 2015-04 (IRB 2015-4) provides guidance on the energy credit under Section 48. Specifically, this notice provides performance and quality standards that small wind energy property must meet to qualify for the energy credit under Section 48.

The IRS has released Notice 2015-01 (IRB 2015-2) the maximum value of vehicles for using the cents-per-mile rule when valuing an employee's personal use of a company car. For 2015 the amounts are $16,000 for autos and $17,500 for trucks and vans. The amounts are $21,300 and $22,900 when the fleet average valuation rule (FAVR) is used.

You may be able to enter into an installment agreement with the IRS for payment of your taxes. In David C. Scholz (T.C. Memo. 2015-2) the taxpayer claimed the IRS Settlement Officer (SO) abused his discretion in denying the taxpayer an installment agreement. The Court found the taxpayer never actually proposed an installment agreement. The SO gave him a reasonable extension of time to do so. The Court noted it's not an abuse of discretion if there is no specific proposal. In addition, the taxpayer did not provide all the requested financial information. The Court also noted the SO gave the taxpayer an extension of time and waited an additional two weeks. The Court found no abuse of discretion by the IRS in denying the installment agreement.

Tip of the Day

Offset against debts . . . If you are due a refund but have not paid certain debts, all or part of your refund may be used to satisfy those debts. This includes past-due federal income taxes, other federal debts such as student loans, state income tax, child and spousal support payments, and state unemployment compensation debt. You will be notified if the refund you claimed has been offset against any debts.


January 13, 2015


You generally can't claim reliance on the advice of a professional as reasonable cause for not filing a return. In Janice C. Specht and Jon Hoffheimer, Co-Fiduciaries of the Estate of Virginia L. Escher (U.S. District Court, S.D. Ohio, West. Div.) the IRS assessed the maximum late-filing penalty with respect to an estate return. The taxpayer's enlisted the deceased's attorney to assist in serving as executor. The attorney had over 50 years of experience in estate planning, but unbeknownst to Mrs. Specht, was battling brain cancer. The attorney deceived Mrs. Specht (whether intentionally or unintentionally), as to the status of an extension regarding the filing of the estate's returns. The deception eventually led to malpractice claims and the voluntary relinquishment of the attorney's law license. The Court cited some 46 undisputed facts among them that the Mrs. Specht knew being the executor of the estate was a serious matter, she was not concerned about making sure the fiduciary duties were done on time, she was aware of the estate tax deadline, she attended no probate hearings in the nine months before the estate tax deadline, made no attempt to sell the stock necessary to pay the tax, received numerous warnings from the probate court and from other sources her the attorney was failing to perform her duties, and was told by another party that they were seeking to have the attorney removed as co-executor of an estate because she was incompetent. Mrs. Specht argued that she lacked the sophistication to complete and file the estate return. The Court countered that there was no evidence to suggest that she did not understand the importance of the estate tax deadline or to ensure that deadline was met. The Court found it difficult to hold that the Plaintiffs were ultimately responsible for the attorney's malpractice, that was what binding precedent required.

You can't avoid receipt of income by not cashing the check. In Anthony J. Santangelo, Jr. and June Lenoir, Co-Executors of The Estate of Natalie Santangelo, Deceased (U.S. District Court, S.D. Mississippi) the deceased owned 21,534 shares of common stock in HCA, Inc. and maintained physical possession of the certificates. HCA merged in November 2006 with another corporation and holders of HCA were to receive $51 for each share of stock. The merger agreement required HCA to immediately deposit the funds with a paying agent and this did occur. That meant the deceased was eligible to receive some $1 million on November 20, 2006. She only needed to surrender the physical stock certificates to collect. Neither the deceased nor her daughter (who had power-of-attorney) took any action to obtain the proceeds until some time after the her death on March 29, 2007. HCA issued a 1099 indicating receipt of the proceeds in 2006. The estate paid the tax but sued to recover, claiming the amount was not actually received in 2006. The Court found the taxpayer constructively received the proceeds in 2006, noting the proceeds had been deposited in 2006 and they were available without substantial limitation. To the extent the stock certificates were lost, this was a self-imposed event.

Tip of the Day

Payment for you received by another . . . If a third party is paid income from property you own, you have constructively received the income. For example, Fred owes Sue for consulting work, but instead of collecting it she tells Fred to pay Fred's brother for work he did on her car. Sue has income and pays for the service on her car. If the car is a business asset, the amount is deductible.


January 12, 2015


Under the bill a full-time worker is one who works 40 hours a week, up from the current 30 hours. The timing of a vote on a companion bill in the Senate is uncertain. President Obama has indicated he would the bill if it passes both houses.

Two Democratic Senators have introduced legislation that would allow the IRS to regulate tax return preparers. The IRS has requested that authority after losing a court case involving the issue in early 2014.

The Treasury Inspector General for Tax Administration (TIGTA) initiated an initiated an audit of the IRS's handling of Earned Income Tax Credit (EITC) improper payment rate because Executive Order 13520, Reducing Improper Payments and Eliminating Waste in Federal Programs, requires TIGTA to assess the IRS’s compliance with the Order on an annual basis. The objective of this review was to assess the IRS’s compliance with the requirements contained in Executive Order 13520 for Fiscal Year 2013. Although the IRS has reported an overall decline in the EITC improper payment rate since Fiscal Year 2003, the amount of payments made in error has increased from $10.5 billion in Fiscal Year 2003 to $14.5 billion in Fiscal Year 2013. The IRS’s Fiscal Year 2013 EITC improper payment report to TIGTA estimates that in Fiscal Year 2013, EITC claims totaled approximately $60 billion and that 24 percent of the EITC payments were paid in error. To see the complete report, go to

Tip of the Day

Disregarded entity . . . If you set up a one-member LLC, for federal and state (generally) tax purposes the entity is ignored. Instead of filing a partnership return, you'll report the income and expenses on Schedule C if it's a business or on Schedule E for rental properties. But that doesn't mean the LLC will be ignored for all tax purposes. For example, in many states there may be an annual report or franchise tax requirement along with a fee. Failure to comply with the filing requirement could put the legal existence of the entity in jeopardy. Check the rules in your state.


January 9, 2015


Provide employees with transit benefits? Notice 2015-02 (IRB 2015-4) provides guidance with respect to issues related to the retroactive increase in the monthly transit benefit exclusion under Section 132(f)(2)(A) of the Code from $130 per participating employee to $250 per participating employee for the period from January 1, 2014 through December 31, 2014. Due to the timing of the statutory change and in order to reduce administrative burden, the Service is providing a special administrative procedure for employers that treated excess transit benefits as wages and that have not yet filed their fourth quarter Form 941 for 2014 to make necessary corrections on their fourth quarter Form 941.

You may be able to recover your litigation fees in a dispute with the IRS if you can meet certain requirements. You can't recover costs if the IRS position is substantially justified. In Patricia Milligan (T.C. Memo. 2014-259) the IRS sent the taxpayer a CP 2000 notice assessing additional tax, interest, and penalty. The taxpayer paid the amount and filed a claim for refund. The IRS issued a Letter 105C, Claim Disallowance Letter, denying the claim and stating "Your claim is frivolous and has no legal basis. Federal courts consistently rule against these arguments." The taxpayer requested a conference with the IRS Appeals Office; the service center filed the taxpayer's request instead of sending it to the Appeals Office. The Taxpayer Advocate Service intervened and the case was assigned to an Appeals officer. The IRS determined the taxpayer was entitled to the claimed refund. The taxpayer sought recovery of her administrative costs of $18,651 and the IRS denied the claim. Tax Court sided with the IRS, finding that the IRS conceded the case. In addition, the CP 2000 notice and the Letter 105C that the IRS issued are neither notices of deficiency nor notices of decision of the IRS Appeals Office. When Appeals finally took a position, it allowed the claim. Thus, the IRS's position was substantially justified.

If the IRS believes you have underreported your income it can reconstruct it by one of several means. Often the Service uses the bank deposits method--amounts deposited in a bank account are considered income unless you can prove otherwise (e.g., from an inheritance). In Peymon Mottahedeh et ux. (T.C. Memo. 2014-258) the IRS couldn't use that method because the taxpayers tried to avoid the use of banks. Instead, the IRS agent used the averaging spending statistics supplemented by estimates of the couple's actual spending amounts. The Court noted that the courts have permitted the IRS to rely on the use of average spending statistics when, as here, the taxpayer fails to cooperate with the IRS. The Court held that the use of average-spending statistics from the Bureau of Labor Statistics and partly on direct estimates of the taxpayers' spending was a permissible method of estimating the couple's spending under the circumstances and that estimating their spending was a permissible method of reconstructing their income.

Tip of the Day

Employee training . . . Save $300 by not sending an employee to the training course on the new software (or machine, etc.)? You may not have saved anything at all. If the employee struggles to use the product the time wasted may cost the company far in excess of the cost of the course. In the case of equipment, there could be costly damage. A course that's reasonably priced and in the local area often makes sense. But some training courses can run into thousands and require air travel and one or more overnight stays. That requires more analysis. Just don't reject a course out of hand.


January 8, 2015


The House has approved the use of dynamic scoring for tax legislation. The Joint Committee on Taxation and the Congressional Budget Office will have to use the approach on future tax legislation. Scoring is how Congress measures the dollar impact of a bill. Dynamic scoring uses models to account for macroeconomic effects of taxes on the gross domestic product. For example, while reducing individual tax rates would reduce tax revenue it would also increase individual spending which would increase the national income producing more tax revenue.

You may be able to have your debts discharged in part or full in a bankruptcy proceeding, but you've got to disclose your liabilities in order to do so. In the case of a tax debt, you must have filed a return within a certain time period. In In re Liana Carol Mallo, et al. (U.S. Court of Appeals, Tenth Circuit) the Court sided with a District Court and found that for purposes of bankruptcy law the taxpayers' returns did not fulfill the definition of a "return". The Court noted that for bankruptcy law purpose the clear `definition of a return does not include a late-filed tax form, except those prepared with the assistance of the IRS under Sec. 6020(a).

Tip of the Day

Check the supply closet . . . Many small businesses can save money by keeping better track of office or other supplies. It's costly to be out of toner for a copy, fax machine or printer. If you're lucky there's a supplier in town who's a quick drive away. But even then an employee has to take time to get the toner. If you're ordering online there may be a delay or high shipping charges for next day delivery. There are many ways to make sure you're stocked--dedicated bins or shelves for items (order when you take the last one), a simple list that's updated or a computerized approach. The flip side--carrying too much inventory--can be just as costly. Not only does it tie up funds, you don't want to have 5 toner cartridges in stock when you junk the only machine that uses them. And the more items you have in stock the better the chance that they may disappear. If an employee sees 10 on the shelf he may think nobody will miss one; if there are only five, he think twice.


January 7, 2015


You can only take depletion (or depreciation) on property in which you have an economic interest. That's what the Court held in Brian T. Gaudreau et ux. (U.S. District Court, D. Kansas). Here the issue involved depletion related to oil and gas deposits. The Court noted that in order to have an economic interest two tests must be met: (1) there must be an interest, acquired by capital investment, in the minerals in place; and (2) the return on the investment must be realized solely from the extraction of the minerals. That same test is used to determine if the taxpayer has a capital gain. The Court found the taxpayers had no economic interest in the property because they could satisfy neither of the two prongs of the test described.

Tip of the Day

Margins higher on online sales? . . . They are for some companies, but not all. There are a number of variables that can affect margins. Need a third party to do fulfillment, handle your Web page, etc.? That can severely cut into margins. Returns of some merchandise can be significantly higher. Offer free shipping? That'll cut your profit. Credit card fraud can also be more of an issue. The cost structure is different too. Brick and mortar stores have high fixed costs, but lower variable costs. It's usually just the opposite for online sales. There's no rule of thumb here. You've got to work through your numbers. Just don't assume online sales will produce the highest profits.


January 6, 2015


As a result of severe winter storm, snowstorm and flooding during November 17-26, the president has declared the counties of the counties of Cattaraugus, Chautauqua, Erie, Genesee, Jefferson, Lewis, Orleans, St. Lawrence and Wyoming in New York eligible for disaster assistance. Taxpayers in these counties who sustained losses as a result of the disaster can report them on their 2013 federal income tax return.

The IRS has released updates to several forms, instructions, and publications. Some of the more important ones include:

Pub. 531 Reporting Tip Income
Form 2220 Underpayment of Estimated Tax by Corporations (and instructions)
Form 2159 Payroll Deduction Agreement
Form 1120 U.S. Corporation Income Tax Return
Form 433-D Installment Agreement
Form 656-B Offer in Compromise Booklet
Inst 1040 Schedule C, Profit or Loss From Business
Inst 1040 Schedule K-1

Shop shippers . . . Not only do shippers' rates change, so do the rules. And that can result in a rate increase as well. For example, some shippers charge a minimum for a carton of a certain dimension, no matter what the weight. Shipping a big stuffed animal could cost more than shipping lead bricks! And this is one place where you can often save money without sacrificing quality. Another point. Unless you ship only one or a few size and weight packages, you're unlikely to find that one shipper will be optimal for all your needs. Take the time to shop, and then do it again in six months.


January 5, 2015


A Federal District Court judge has authorized the IRS to issue summonses requiring Federal Express Corporation; FedEx Ground Package System, Inc., a/k/a FedEx Ground; DHL Express; United Parcel Service, Inc.; Western Union Financial Services, Inc. the Federal Reserve Bank of New York; Clearing House Payments Company LLC; and HSBC Bank USA, National Association, to produce information about U.S. taxpayers who may be evading or have evaded federal taxes by using the services of SOVEREIGN MANAGEMENT & LEGAL, LTD. (“Sovereign”), to establish, maintain, or conceal foreign accounts, assets, and entities. In this action, the Court granted the IRS permission to serve what are known as “John Doe” summonses on the entities listed above. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct these eight entities to produce records that will assist the IRS in identifying U.S. taxpayers who, from the years 2005 through 2013, used Sovereign’s services to establish, maintain, operate, or control any foreign financial account or other assets; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account in the name of such foreign entity. According to the allegations set forth in the documents filed in support of the petition, and other information in the public record:

Sovereign is a multi-jurisdictional offshore services provider that offers clients, among other things, the formation and administration of anonymous corporations and foundations in Panama as well as offshore entities. Related services provided by Sovereign include the maintenance and operation of offshore structures, mail forwarding, the availability of virtual offices, re-invoicing, and the provision of professional managers who appoint themselves directors of the client’s entity while the client maintains ultimate control over the assets.

As a result of a DEA investigation of online narcotics trafficking known as OPERATION ADAM BOMB, the IRS learned that Sovereign was involved in assisting U.S. clients with tax evasion. During the IRS’s investigation of Sovereign’s conduct, one taxpayer, making a voluntary disclosure of tax non-compliance to avoid prosecution, reported that Sovereign helped the taxpayer form an anonymous corporation in Panama that the taxpayer used to control assets without appearing to own them.

The IRS investigation also determined that Sovereign uses Federal Express, UPS, and DHL to correspond with U.S. clients, and Western Union to transmit funds to and from clients in the U.S. In addition, the IRS learned that the wire services operated by the FRBNY and Clearing House, and the U.S. correspondent bank accounts that HSBC USA holds for Sovereign’s banks in Panama and Hong Kong, are likely to have records of financial transactions between Sovereign and its clients in the U.S. By obtaining information from these entities through John Doe summonses, the IRS expects to be able to identify Sovereign’s U.S. clients who may be avoiding or evading taxes.

Tip of the Day

Background checks on new employees . . . They're actually more important for small businesses than for larger ones. For one, employee theft in a small business is often easier than in a large one. For another, firing and replacing or simply dealing with a new hire that isn't working out can be far more disruptive for a small business than a large one. Develop a list of background checks and then apply them consistently. While you can't screen on age, religion etc., you can check criminal background, identity, previous employment, references, education, driving record, etc. For some sensitive jobs you should be particularly careful. For example, if you handle a lot of cash you want to be sure to check criminal history. Rules can vary by state. Aren't sure of what to do? Hire a professional, at least until you're up to speed. The money will be well spent.


January 2, 2015


The IRS has released updates to a number of forms, instructions, and publications for this year's filing season. Some of the more important ones include:

Pub. 15 Circular E, Employer's Tax Guide (also Pub. 15-A, 15-B, and 51)
Pub. 17 Your Federal Income Tax
Pub. 596 Earned Income Credit
Pub. 501 Exemptions, Standard Deduction, and Filing Information
Pub. 503 Child and Dependent Care Expenses
Pub. 521 Moving Expenses
Pub. 926 Household Employer's Tax Guide
Pub. 972 Child Tax Credit
Pub. 5185 Facts about Making a Shared Responsibility Payment
Form 1040 U.S. Individual Income Tax Return
Form 1040 Schedule A, Itemized Deductions
Form 1040 Schedule F, Profit or Loss From Farming
Form 8867 Paid Preparer's Earned Income Credit Checklist
Form 8949 Sales and Other Dispositions of Capital Assets
Form 3520 Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
Form 8283 Noncash Charitable Contributions
Form 8959 Additional Medicare Tax
Form 8960 Net Investment Income Tax Individuals, Estates, and Trusts
Form 1040 Schedule E, Supplemental Income and Loss
Inst 2441 Instructions, Child and Dependent Care Expenses
Inst 8283 Noncash Charitable Contributions
Inst 8965 Health Coverage Exemptions
Inst 1095-A Health Insurance Marketplace Statement

There's no loophole that allows you to avoid paying taxes. In Hamlet C. Bennett (T.C. Memo. 2014-256) the taxpayer attended a seminar presented by Royal LaMarr Hardy, a carpet cleaner when the taxpayer first met him. Hardy presented various means of avoiding taxes. The taxpayer set up multiple entities and deposited some of the receipts from his business in accounts in the name of those businesses. In 1999 the taxpayer was contacted by agents conducting a criminal investigation of Hardy. He maintained a frivolous position that he was not subject to income tax. In 2008 he was found guilty of income tax evasion by a jury and served over five years of a 78-month sentence. He was released in November 2013. The Court here had to decide whether the taxpayer's failure to file returns for 1995 though 1998 was accompanied by an intent sufficient to sustain the fraud penalty of 75% of the amount required to be shown on the tax return. In trying to ascertain intent, the Court found that the taxpayer's filing of returns for decades before 1995, stopping only after he faced substantial liabilities for 1993 and 1994 was indicative. The Court also noted the taxpayer relied on the advice of a carpet cleaner while disregarding cautions by his CPA.

Tip of the Day

New markets vs. minding the store . . . Some companies pursue growth just for the sake of higher sales, more outlets, etc. Don't fall into the trap. Managing several stores can be much more challenging that operating just one or two. The same is true of multiple product lines. More than one business has failed because it expanded too rapidly. And many entrepreneurs are great a starting a business but not at managing growth. You might be able to outsource some of the workload such as order fulfillment, manufacturing, etc. Or even license a product that's not part of your core business. Before committing to expansion plans, get good advice and make sure you and your employees have the skills to handle the larger business.


December 31, 2014


You may be able to argue that the IRS abused its discretion if your offer-in-compromise is rejected, but in Gary Lee Pansier et ux. (T.C. Memo. 2014-255) the IRS claimed the taxpayer submitted documentation with the offer that included forged or altered IRS notices intended to support the taxpayer's contention that liabilities were not actually owed for certain tax years. The IRS pointed out that the altered documents did not agree with the IRS computer records and the font used to print the "Amount Due" figures did not match the computer font used in the actual "Interest" figures. The Court noted the taxpayers' history of disputes with the IRS and engaged in hostile, obstructive, and frivolous conduct at every stage in the proceedings. The Court held the IRS notices of determination were not an abuse of discretion.

Tip of the Day

Wash sale rule . . . If you sell securities at a loss and repurchase them within 30 days (before or after) acquire substantially identical stock or securities the loss is disallowed and added to the cost basis of the new stock or securities. Thus, the adjustment just defers the loss until the new stock is sold. You can't avoid the rule by purchasing the identical stock through your IRA. There's no similar rule for stock sold at a gain. Why sell stock with a gain only to repurchase it? It can make sense if you're normally in a high bracket and in the current year you're in a much lower one. For example, your AGI is usually north of $600,000, but this year your business had a serious setback and you're lucky your AGI is almost $75,000. The capital gain may escape tax altogether, or be taxed at 15% rather than the 23.8% in a usual year. Taking a gain this year could mean paying less (or no) tax on all or a portion of any eventual gain. There is some danger that, should the stock fall after repurchase, you may have trouble getting the tax benefits for the loss. Investment concerns are paramount. Talk to your tax advisor before committing.


December 30, 2014


The IRS has announced (IR-2014-114) that it anticipates opening the 2015 filing season as scheduled in January. Accordingly, the IRS will begin accepting tax returns electronically on Jan. 20. Paper tax returns will begin processing at the same time. IRS Commissioner John Koskinen has indicated that the Service was updating and testing systems. More information about IRS Free File and other information about the 2015 filing season will be available in January.

When a participant has saved less than $5,000 in a 401(k) plan and changes jobs without indicating what should be done with the money, the plan can transfer the account savings--a forced transfer--into an IRA. Savings in these IRAs are intended to be preserved by the conservative investments allowed under the Department of Labor (DOL) regulations. In a study the GAO (General Accountability Office) found that because fees outpaced returns in most of the IRAs analyzed, these account balances tended to decrease over time. The GAO also found that a provision in the law allows a plant to disregard previous rollovers when determining if a balance is small enough to force out. For example, a plan can force out a participant with a balance of $20,000 if less than $5,000 is attributable to contributions other than rollover contributions. The GAO recommended that Congress consider (1) amending current law to permit alternative default destinations for plans to use when transferring participant accounts out of plans, and (2) repealing a provision that allows plans to disregard rollovers when identifying balances eligible for transfer to an IRA.

Tip of the Day

Buy-sell agreements . . . You know you should have one (although many business owners don't) to handle the death or disability of a major stockholder or partner. But what about minority holders? For example, you rewarded your VP of sales with a 5% stake in the company. But what will you do if he quits or you have to fire or lay him off? While his stake may be small, it can cause major headaches. You don't want a former employee, particularly one who may no longer be friendly, to hold even a minor interest in your business. The solution is simple. Before issuing the shares have your attorney draft an agreement prohibiting the sale or transfer of the shares and requiring him to sell them back to the company should he leave for any reason. Make sure you have a formula for valuing the shares. Getting an appraisal can be costly and open the issue to litigation.


December 29, 2014


The IRS has issued proposed regulations (REG-145878-14) regarding the summary of benefits and coverage (SBC) and the uniform glossary for group health plans and health insurance coverage in the group and individual markets under the Patient Protection And Affordable Care Act. It proposes changes to the regulations that implement the disclosure requirements under section 2715 of the Public Health Service Act to help plans and individuals better understand their health coverage. It proposes changes to documents required for compliance with section 2715, including a template for the SBC, instructions, sample language, a guide for coverage, example calculations, and the uniform glossary.

Announcement 2015-1 from the IRS describes changes to the processing of employee plans determination letters that will take effect in 2015. The announcement pertains specifically to the IRS's procedures for when it receives an incomplete application for a determination letter. The IRS will request and applicants will have 30 days to provide the missing information; after that the case will be closed.

Tip of the Day

Recordkeeping for pension plans . . . While the recordkeeping for some plans, such as a SEP, may be minor, some records are required. Some records are common to all plans, some are unique to particular plans. In addition, you may have to retain some records for until participants are paid out. You can more information at or talk to your tax advisor.



December 26, 2014


The IRS has issued final regulations (T.D. 9707) concerning the manner of filing Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. The final regulations affect certain 25-percent foreign-owned domestic and foreign corporations required to file Form 5472.

The IRS has announced (IR-2014-118) that they have accepted a request for guidance under the IRS' Industry Issue Resolution program regarding the capitalization rules as used by restaurants. The request seeks guidance on the capitalization rules including application of unit property rules, refresh and remodel expenses, rules for general maintenance and repair expenses.

Tip of the Day

Qualified charitable distributions . . . One of the extenders in the recent law was the provision for qualified charitable distributions from IRAs. You must be age 70-1/2 or older in order to qualify for the benefit. In addition, the maximum distribution is $100,000 per year. The distribution qualifies as your required minimum distribution for the year. Why not just write a check from your other funds or contribute appreciated stock? The advantage here is that the distribution isn't counted as income--and any distributions from your IRA will normally be fully taxable (unless you made nondeductible contributions to the IRA). Contributing appreciated property simply saves taxes at capital gain rates. In addition, making a qualified charitable distribution doesn't increase your AGI. That could help you avoid the net investment income tax, as well as the phase-out thresholds for many benefits. But there's not much time left. This benefit may not be renewed for 2015.


December 24, 2014


The IRS has released proposed regulations (REG-109187-11) relating to the nonrecognition of gain or loss on certain dispositions of an installment obligation. In general, under the proposed regulations, a transferor does not recognize gain or loss on certain dispositions of an installment obligation if gain or loss is not recognized on the disposition under another provision of the Code. The proposed regulations also provide that this general rule does not apply to the satisfaction of an installment obligation.

In Jay Rosenthal (T.C. Memo. 2014-252) the taxpayer failed to submit requested financial information, had assets in excess of his liabilities, and an oral offer in compromise, and had delinquent tax returns. The IRS denied an additional extension of time and proceeded with collection action. The taxpayer argued the IRS abused its discretion by denying his request for additional time to submit the requested information and that the IRS rejected his collection alternatives, arguing that the IRS was statutorily required to consider them. The Court noted that whether or not a request for more time is reasonable depends on the particular facts. The IRS did provide additional time and there is no requirement that the IRS wait a certain amount of time. In addition, the IRS's approach was not inconsistent with IRS guidelines. The Court also found that the taxpayer did not make a concrete proposal in writing for a collection alternative, never provided requested financial information, and never filed the delinquent tax returns. Any one of these failures justified the IRS's determination not to allow a collection alternative. The Court was sympathetic to the taxpayer's position, but found no abuse of discretion by the IRS.

Tip of the Day

Do you need a business plan? . . . For years business advisors have argued that any enterprise is starting out at a disadvantage if they don't have a plan. We've recently seen some articles that say you really don't need a plan unless required by an outside source. We'll take issue with that. It is true that some businesses won't benefit much from a plan. And a plan that isn't researched well won't help much. But the simple fact is that if you're writing a plan means you're thinking through the steps. You're forecasting sales and expenses based upon some information. While sales forecasts are difficult to make, you should be able to forecast expenses and cash outlays much closer. If you monitor the plan, that should give you an idea of how you're doing. For example, you forecast sales for the first year of $500,000 and expenses (all variable) of $400,000, leaving you with a $100,000 profit. Nine months into the plan expenses are on track but sales are only $200,000. Clearly, you've got a problem. Or sales are on track, but expenses are much higher. If that's the case you've got to investigate the difference. Without a plan you've got no starting point. Moreover, developing the plan forces you to look at the details of the venture to see where problems might occur, which areas need extra attention, etc. No matter how long a good pilot has been flying, he uses a checklist to make sure he hasn't missed any item before takeoff or landing. Skipping the plan will not save you money and it could prove costly. Final thought. If the business fails, the IRS could claim you didn't intend to make a profit. A business plan is one of the key factors the IRS and courts look for.


December 23, 2014


President Obama has signed the Tax Increase Prevention Act of 2014 which extends over 50 tax benefits that expired at the end of last year. The new law also includes Achieving a Better Life Experience (ABLE) accounts that provide benefits for disabled individuals.

In Leroy Muncy (T.C. Memo. 2014-251) the taxpayer was convicted of tax evasion and ordered to pay restitution as a result of a criminal proceeding. The IRS then determined deficiencies for three tax years by calculating the taxpayer's correct tax liability for those years and subtracting the amounts of restitution ordered by the District Court. In an amended answer the IRS asserted that the amounts of restitution should not be subtracted from the correct tax liability. The Tax Court agreed with the IRS's position, holding the taxpayer's criminal plea agreement and judgment ordering restitution did not discharged, and did not reduce, the taxpayer's deficiencies for the years at issue.

The IRS takes the requirement to sign your return seriously. In Steven Edward Hillman (T.C. Memo. 2014-250) the Tax Court held that the taxpayer did not file a valid return by the due date because the document filed did not contain his signature. The taxpayer offered no evidence to establish that his late filing was due to reasonable cause and not due to willful neglect.

Tip of the Day

Store credit card offers . . . Get a Madison Stores credit card and save 5% on every purchase. A good deal? As usual, it depends. Getting a new credit card could negatively affect your credit score. It depends on how many you already have and the limits on them. The second issue is will the 5% off prove worthwhile. Here it depends on how often you shop that store. If you're working on rehabbing your own home and a rental property, a card to a big box hardware store could make sense--if their prices are competitive. If you're only an occasional shopper at the store or prices are better elsewhere, that card could induce you to spend more there--at your expense.


December 22, 2014


In an e-mail to IRS employees Commissioner Koskinen that hiring will be frozen with an exception for only a few mission critical positions. In addition, travel is being further The restricted and overtime eliminated except for critical situations. The Commissioner noted that the 2015 budget is comparable to the 1998 one after considering the effects of inflation, yet the IRS now receives 27.4 million more individual and 3 million more business returns than in 1998.

IRS Commissioner Koskinen has predicted the "upcoming filing season to be a very complex one". The Commissioner also indicated that the IRS is reprogramming its system to take into account the extenders package, but expects the filing season to open on time. He also noted that there are fewer people to perform audits and telephone service is expected to be significantly impacted.

Revenue Ruling 2014-34 (IRB 2014-52) provides tables of covered compensation under Sec. 401(l)(5)(E) for the 2015 plan year. The law defines covered compensation with respect to an employee as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the employee attains social security retirement age.

Tip of the Day

State estimated tax payments due . . . For most taxpayers the final estimated tax payment for state income taxes is January 15th. Many elect to pay that final installment in December to get a 2014 tax deduction. But before you do, check to see if you're going to be subject to the alternative minimum tax (AMT) this year and/or next. Because the payment is not deductible for AMT purposes, if you're hit with the tax in 2014 the payment will go unutilized. If you know you'll escape the AMT next year, it may be more beneficial to make the payment next year. For example, normally you're not subject to the tax, but this year you've got a large capital gain which ate up your AMT exemption. Best approach? Run the numbers with your tax software. There's a lot of factors to consider. Calling your tax advisor would be a good idea.


December 19, 2014


In Anthony E. Clifford (T.C. Memo. 2014-248) the taxpayer claimed the IRS Settlement Officer abused his discretion in rejecting the taxpayer's offer in compromise. The IRS claimed the taxpayer's offer was less than the taxpayer's reasonable collection potential (RCP) and, absent special circumstances, it could not accept an offer of less than the taxpayer's RCP. The Court found the Settlement Officer did not abuse his discretion by closing the case without soliciting another offer from the taxpayer, especially because the taxpayer's most recent offer was substantially below his RCP and because he was not in compliance with his current tax obligations.

Think twice before refusing to accept delivery of a tax notice. In Harold P. Kupersmit (T.C. Memo. 2014-247) the Tax Court held that by refusing delivery of notices of deficiency, the taxpayer repudiated his "opportunity to contest the notices of deficiency in this Court." He was precluded from challenging, both at a collection due process hearing and in Tax Court his underlying tax liability for the years at issue.

The IRS recently released Publication 5187, Health Care Law: What's New for Individuals and Families. The publication may be very helpful if you're doing your own return.

Tip of the Day

Asking rent vs. effective rent . . . If you're renting commercial property (e.g., office or retail space) the quoted asking rent or published rents may be very different than the effective rent. It's not just that the cost per square foot may be different, but there can be a number of other incentives or costs. For example, the asking rent may be $25 per square foot, but most landlords are giving five-months' free rent, providing an alterations allowance, etc. Or there can substantial rent steps that other landlords aren't writing. You've got to take those incentives or costs into account when comparing space or negotiating. A lease can be a significant expenditure, get good advice.


December 18, 2014


The Senate has passed the Tax Increase Prevention Act of 2014, or more popularly, the tax extenders package. The Act retroactively extends the provisions that expired at the end of 2013 for one year, through December 31, 2014. See our article Tax Extenders Package Passed for complete details.

Regulations Sections 1.6049-4(b)(5) and 1.6049-8(a) require the reporting of certain deposit interest paid to nonresident alien individuals on or after January 1, 2013. Revenue Procedure 2014-64 (IRB 2014-53) lists the countries with which the U.S. has in effect an income tax or other convention or bilateral agreement relating to the exchange of information.

As a result of severe storms and flooding during September 7-9, the president has declared the counties of La Paz and Maricopa in Arizona eligible for disaster assistance. Taxpayers in these counties who sustained losses as a result of the disaster can report them on their 2013 federal income tax return.

If the IRS tries to levy your property you may be able to stop the levy if you can show an abuse of discretion by the IRS. In Spencer Hosie et ux. (T.C. Memo. 2014-246) the taxpayers had outstanding liabilities for 2006 and 2011. The taxpayers asked for an installment agreement, but had defaulted on four previous installment agreements. They stated their intention to sell their personal residence by request that sale of their vacation home be delayed. After waiting for 3-1/2 months with no word from the taxpayers the Settlement Officer closed the case and sent the taxpayers notices of determination sustaining the collection actions for 2006 and 2011. The taxpayers argued the IRS abused its discretion by refusing to withdraw the notice of federal tax lien, (and contended it can complicate the sale of realty), and the Settlement Officer did not properly balance the need for efficient collection of taxes with the taxpayers' concerns that the collection action be no more intrusive than necessary. The Court found no abuse of discretion and granted the IRS summary judgment. The Court noted the Settlement Officer was generous. He was willing to consider a collection alternative despite the taxpayers' ten-year history of noncompliance, their default on four previous installment agreements, and their possession of $9.3 million of equity in their residence and vacation home.

Tip of the Day

Business related education expenses . . . Education expenses that maintain or improve skills that are required for your employment and those that are required by your employer for you to keep your job are deductible. For example, you're working as a licensed plumber for a contractor and take refresher courses or courses to learn about new developments in the field or in an area of plumbing where you aren't familiar would qualify for deduction. So would courses your employer requires you to take. Meeting the requirements can be tricky. One of the tests is would the courses qualify you for a new trade or business? If so, they're not deductible. The IRS has held that courses a accountant took so he could sit for the CPA exam were not deductible. Why? A CPA is a different trade or business than that of an accountant.


December 17, 2014


In Amazon.Com, Inc. and Subsidiaries (T.C. Memo. 2014-245) the taxpayer sought to quash a trial subpoena served by the IRS on Jeff Bezos, the founder, chairman of the board of directors, and chief executive officer of The Court noted the parties conducted extensive discovery in the case. The IRS initially sought to depose up to 48 fact witnesses, and the taxpayer filed a motion for protective order pursuant to Rule 103 (Tax Court Rules) seeking to limit the total number of fact witnesses the IRS could depose. The IRS filed a response indicating that it wished to depose only 16 party and nonparty fact witnesses; the IRS did not list Mr. Bezos as one of those potential witnesses. In an order dated April 25, 2014, the Court permitted the IRS to depose a total of 12 witnesses; Mr. Bezos was not one of the individuals the IRS elected to depose. The IRS first identified Mr. Bezos as a potential witness in September 2014. In a pretrial memorandum, the IRS listed Mr. Bezos as a potential witness. The Court indicated it would postpone a ruling on the motion to quash until after the taxpayer had completed presentation of its case in chief, allowing the Court to better assess the IRS's need for Mr. Bezos' testimony. The Court felt that other witnesses comprehensively covered the subjects on which Mr. Bezos was to testify. The Court held that after balancing the IRS's need for the requested testimony against the burden on Mr. Bezos, it concluded that the burden imposed would be "undue" and granted the taxpayer's motion to quash the subpoena.

If you're going to make a claim of mental illness as an argument for not taking care of your tax obligations, you've got to keep the facts consistent. In Markus Brent Stanley (U.S. Court of Appeals, Fifth Circuit) the IRS argued his outstanding tax liabilities were not discharged in bankruptcy because he willfully attempted to evade his tax liability. The taxpayer argued that he failed the third prong of a three-pronged test to determine willfulness in tax evasion in that his bipolar disorder prevented him from voluntarily and intentionally attempting to evade payment of a tax. The Court noted that during the period in which he neglected his tax obligations, the taxpayer entered into several fairly complicated real estate transactions where he put the property in his wife's name, at least in part to protect it from being seized in the course of a lawsuit and made timely mortgage payments. Among other things he purchased a number of luxury items, and established a wholly-owned corporation, and paid various state taxes and a license plate fee on time. The Appeals Court upheld the district court's finding that the taxpayer willfully attempted to evade his federal income taxes.

Tip of the Day

Make hacking more difficult . . . If outsiders have access to your internal network through an internet or similar connection, there's virtually no way to fully protect the data on the network. But does all that data have to be accessible? The recent hacking of several major corporations brings this to light. Why is it necessary to have multiple years of e-mails instantly accessible? If it were on paper, boxes of the documents would be going to dead storage after three years. Social security numbers and sensitive personal information only should be accessible by human resources and payroll. Subcontractors should not routinely be allowed access. There's a lot you can do to make it more difficult for a hacker, albeit often at a cost of making access to information by employees less convenient. But the cost to the company resulting from the additional security is far outweighed by the direct and indirect costs if hackers steal sensitive financial data.


December 16, 2014


The IRS has published Rev. Proc. 2014-63 (IRB 2014-53) that will broaden what has been a limited post-appeals mediation procedure for offers-in-compromise and trust fund recovery penalty cases into a national program for more issues. The revenue procedure consolidates the procedures for mediation of examination cases and issues and collection cases and issues into a single revenue procedure. The revenue procedure supersedes Rev. Proc. 2009-44 and Announcements 2008-111 and 2011-6. Mediation after Appeals is not mandatory; it must be agreed to by both parties. Mediation is nonbinding; the mediator does not have settlement authority over any issue. and is available for legal issues and factual issues; it is not available for some issues specifically designated as inapplicable. You can find more information at Appeals Mediation Programs.

If you file a claim for refund and the IRS rejects the claim, you can take your case to U.S. Court of Federal Claims. That's what the taxpayer did in Jackie Ray Cearley (U.S. Court of Federal Claims). But the Court found that the taxpayer, a North Carolina state prisoner, had not pled sufficient facts to support a reasonable inference that he was owed a tax refund. The documents submitted were missing basic details and the taxpayer did not attach any form to show that he was entitled to a $20,024 tax refund, because there was no indication he paid that amount in taxes and that his claim was not plausible on its face. In addition, the taxpayer did not provide a valid tax return with his complaint. The Court held the taxpayer did not meet the requirements for a tax refund suit and granted the IRS's motion to dismiss for failure to state a claim upon which relief could be granted and for lack of subject matter jurisdiction.

Tip of the Day

Get the customer to spend when you want him to . . . There are certain times when store traffic is at a minimum. For a restaurant, it's often early in the week. You've probably got enough business on Friday and Saturday. Providing 25% off on bicycle tuneups before March 31 boosts sales during your slowest time. Helps the shop avoid the April/May crunch. By reducing your sales peaks and valleys you can avoid overtime and keep the staff busy. A steady cash flow will also help you reduce short term borrowing.


December 15, 2014


The IRS has issued final regulations (T.D. 9706) providing guidance relating to the provisions of the Hiring Incentives to Restore Employment (HIRE) Act that requires specified foreign financial assets to be reported to the IRS for taxable years beginning after March 18, 2010. The final regulations provide guidance relating to the requirement that individuals attach a statement to their income tax return to provide required information regarding specified foreign financial assets in which they have an interest.

The IRS's budget is under pressure from Congress while costs continue to rise because of additional mandates as well as an overall increase in costs. Taxpayers can expect a cutback in some services and longer wait times.

The IRS has announced that a new version of the Form 656-B booklet, with forms and instructions for submitting an Offer in Compromise (OIC), will be available on in January. The use of earlier versions after Jan. 1 will delay the processing of OIC applications.

Tip of the Day

Automate responses to inquiries . . . Still answering account questions using real people? Sometimes they're necessary. But you should try to let your computers do as much as possible such as providing information on shipping, account balances, inventory status, etc. The savings can be substantial. How much? The IRS estimates it costs about 17 cents to provide an automated answer to a taxpayer's question while using a live operator costs about $33. There could be reasons for the disparity other than simply using a human. For example, the questions posed the live operator could be much more complex. But there's no doubt the savings are significant. Moreover an automated response system can be on duty 24/7.



Copyright 2014-2015 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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