News and Tip of the Day


Small Business Taxes & ManagementTM--Copyright 2017, A/N Group, Inc.

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July 21, 2017

News

Notice 2017-40 (IRB 2017-32) amplifies Notice 2015-77 with respect to the Treasury Department’s Housing Finance Agency Innovation Fund for the Hardest-Hit Housing Markets (HFA Hardest Hit Fund) by extending through 2021 the safe harbor method for computing a homeowner’s deductions for payments made on a home mortgage and the relief for mortgage servicers and state housing finance agencies (State HFAs) from penalties relating to information reporting. In addition, this notice amplifies Rev. Proc. 2011-55 by extending its scope and effective date through calendar year 2021 for the HFA Hardest Hit Fund.

You don't need to receive cash from your qualified plan in order to be taxed on a distribution. Having a loan outstanding and failing to comply with the repayment terms can trigger a "deemed distribution" which has the same effect. That was the situation in Louelia Salomon Frias et vir (T.C. Memo. 2017-139). The taxpayer took a loan from her 401(k) of $40,000. The loan agreement specified that repayments were to be made through biweekly paydroll deductions. Unfortunately, her employer failed to deduct the amounts from her paycheck. When she realized the error she promptly tried to cure the problem, but unknown to her by then it was too late. Nonetheless, she made regular payments on the loan. The plan administrator posted a Form 1099-R on its website, but the taxpayer never accessed it. The taxpayer claimed she qualified for the exception of someone on leave. Unfortunately, she received accrued vacation, and sick pay for the first five weeks of the loan. The Court held the exception did not apply and the taxpayer was liable for the 10% penalty on early distributions. The IRS also assessed the 20% accuracy-related penalty. The Tax Court noted that nonreceipt of an information return such as a Form 1099-R does not excuse a taxpayer from his duty to report the income, and nonreceipt is not enough to constitute reasonable cause. However, the Court also noted that in contrast to other to other cases where the taxpayers knew or should have known they had taxable income, the record supports a finding that the taxpayer did not have reason to know that her loan had been treated as a deemed distribution for 2012. (The plan administrator recorded the loan as paid at the end of the term and sent her correspondence to that effect.) Her employer had an obligation to withhold the loan repayment amounts from her paychecks and to transmit the amounts to the administrator. The employer failed to meet this obligation and provided advice which proved to be wrong. The Court found the taxpayer not liable for the accuracy-related penalty.

Tip of the Day

Withholding on real property sales by foreign persons . . . The Foreign Investment in Real Property Tax Act (FIRPTA) requires a FIRPTA withholding tax of 10% of the amount realized on the disposition of all U.S. real property interests by a foreign person. A buyer of U.S. real property interest from a foreign investor is considered the (transferee) and also the withholding agent. The transferee must find out if the transferor is a foreign person. If the transferor is a foreign person and the transferee fails to withhold, the buyer may be held liable for the tax. The seller must report that sale of the real property interests by filing a U.S. Federal Tax Form 1040-NR or Form 1120-F. For more information, go to FIRPTA Withholding Withholding of Tax on Dispositions of United States Real Property Interests at irs.gov.

 

July 20, 2017

News

The IRS has issued a final regulation (T.D. 9820) changing the amount of the user fee for the special enrollment examination to become an enrolled agent. The new fee is set at $81 per examination part. The final regulation affects individuals taking the enrolled agent special enrollment examination.

The IRS has issued final and temporary regulations (T.D. 9821) that update the due dates and extensions of time to file certain tax returns and information returns. The dates are updated to reflect the new statutory requirements set by section 2006 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 and section 201 of the Protecting Americans from Tax Hikes Act of 2015. These regulations affect taxpayers who file Form W-2 (series, except Form W-2G), Form W-3, Form 990 (series), Form 1099-MISC, Form 1041, Form 1041-A, Form 1065, Form 1120 (series), Form 4720, Form 5227, Form 6069, Form 8804, or Form 8870.

If you're contributing more than $500 of property (clothing, appliances, etc.) you've got to file Form 8283 and your chances of an inquiry from the IRS most likely increase. That means you want to double check your documentation. In Mark Robert Ohde et ux. (T.C. Memo. 2017-137) the taxpayer claimed charitable contributions of property of some $145,000 for the year at issue. (The taxpayer also contributed large amounts in several prior years.) The Court noted the similar items of property must be aggregated for purposes of determining whether a contribution exceeds the $5,000 threshold (which was clearly exceeded) where a "qualified appraisal" is required and the no appraisal of any kind was obtained. The Court found the taxpayers' claim that they donated more than 20,000 items to Goodwill in a single year is implausible on its face and was unsupported by any credible testimony or other reliable evidence. They kept no contemporaneous records establishing the number of items actually donated or the values of such items. The Court denied a deduction for all but $250.

Tip of the Day

Retiring business owners . . . Current or former business owners who are retiring and other retirees often have unique retirement issues and advantages. They may or may not have a pension. They may have a large lump-sum payment to invest from the sale of their business, or a payment spread out over a number of years. They may hold an interest in rental real estate, often retaining the business' building and leasing it back to the new owner. Sometimes they have interests in other local businesses that may or may not throw off cash distributions. The businesses may be profitable and create a tax liability without the cash to pay the taxes. And, in more than a few cases they may still be working well into "retirement" and have to take distributions from an IRA or pension plan as well as collecting social security while taking a salary and having pass-through profits from the business. If you fall into these categories or other special situations you need more than a cookie-cutter approach to retirement and estate planning. Get good advice and if your CPA isn't your financial advisor, make sure he knows about your plans.

 

July 19, 2017

News

As a result of severe storms, straight-line winds and flooding in Tennessee from May 27 to May 28, 2017, the president has delcared the counties of Blount, Cumberland, Fayette, Knox, Loudon, Morgan, Putnam, Rhea, roane, Sevier, Shelby and Smith eligible for federal government assistance. Taxpayers in these counties who susained losses as a result of the disaster may deduct the losses on either their 2017 or 2016 income tax returns.

Distributions for qualified retirement plans, including IRAs, you receive before reaching age 59-1/2 are subject to a 10% penalty tax unless you meet one of the exceptions. In David D. Pritchard and Barbara H. Pritchard (T.C. Memo. 2017-136) the taxpayers took an early distribution of some $69,600 from an IRA. Neither taxpayer had achieved age 59-1/2. A portion of the distribution was used to pay state and federal income taxes. The Tax Court heard the taxpayers' arguments, but noted that none of the statutory exceptions to the penalty applied, which even the taxpayers conceded. The Court allowed the imposition of the penalty.

Tip of the Day

Profit vs. cash flow . . . The danger of measuring your success by your cash flow is that ultimately profits are paramount. Cash flow doesn't take into account depreciation and other noncash charges. The machine or other property that's generating that cash flow will have to be replaced at some time in the future. At that point, cash flow will be negative. On the other hand, a venture that's not profitable may be generating cash that can be used to finance other activities. And an operation that's profitable could be a big cash drain because it requires constant cash infusions. Before considering acquire or dispose of a business, analyze both the profit and the cash flow from it and how it relates to your business.

 

July 18, 2017

News

You may be able to cover your attorney's fees and other administrative and litigation costs if you are the "prevailing party" in a dispute with the IRS. In Nina H. Kazazian (T.C. Memo. 2017-135) the IRS Appeals officer determined the taxpayer was not entitled to innocent spouse relief. Before the issue went to court the IRS conceded and granted innocent spouse relief. The taxpayer sought her litigation and administrative costs. A taxpayer is not the prevailing party if the IRS's position is "substantially justified". A position is substantially justified if it is justified to a degree that could satisfy a reasonable person and has a reasonable basis both in law and in fact. The IRS's position may be substantially justified even if incorrect if a reasonable person could think it correct. The fact that the IRS loses a case or makes a concession “does not by itself establish that the position taken is unreasonable” but is “a factor that may be considered.” The Court denied the petitioner her litigation costs. The Court also noted that even if she was the prevailing party she had not proven the dollar amount of professional fees that she incurred in pursuing her claim for innocent spouse relief.

Tip of the Day

Like-kind exchanges . . . Often known by the applicable Code Section, 1031 exchanges, are a way of deferring tax on the gain of a property your disposing of by replacing it with a similar property. A trade-in of a truck or other equipment used in your business for a new one is the most common example, but real estate investors often use the approach to great benefit. Unfortunately, this is one tax benefit Congress may do away with in comprehensive tax reform. We're not sure how serious the they are, but there's no doubt that it would be an important revenue raiser. What are the chances of passage? Not sure. But if you've got one or more investment or rental properties you're considering selling, you might want to track the legislation and be ready to do an exchange.

 

July 17, 2017

News

In Bob Gregory et ux. (149 T.C. No. 2) the taxpayers owned C, an S corporation that operated a landfill and used the cash method of accounting for tax purposes. C was legally required to pay reclamation and closing costs if and when it closed the landfill. C currently deducted its estimated clean-up costs under Section 468. The IRS contended that Section 468 applies only to accrual-method taxpayers. The Tax Court held the term “taxpayer” in Section 468 includes cash-method taxpayers and is not limited to accrual-method taxpayers. The Court also held cash-method taxpayers must make a Section 468 election to currently deduct estimated reclamation, closure, and post-closure costs before the costs are paid. C did make such an election, and it may therefore currently deduct its estimated reclamation and closing costs.

Tip of the Day

Liens . . . Buyng property from a party in financial difficulty sounds like it could be a good deal. A caah-strapped seller may let the property go for less than fair market value. But there could be liens attached to the property. If the debt is owed to the federal government, the government must receive adequate notice of the sale, otherwise the linet is not discharged. If significant amounts are involved, such as in the case of large equipment or real estate, consult your attorney before acting.

 

July 14, 2017

News

Republicans in the Senate have released a new version of their health care bill, Better Care Reconciliation Act of 2017. It has yet to be voted on, but it would retain the net investment income tax (the tax on on interest, dividends, capital gains, etc.) and the Medicare surtax for higher income individuals, but would broaden the use of health savings accounts (HSAs) and would allow the premium tax credit on "catastrophic insurance plans".

The IRS has withdrawn the remaining part of a notice of proposed rulemaking (REG-139633-08) containing proposed regulations that would have required an exchange or distribution of net value for certain corporate formations and reorganizations to qualify for nonrecognition treatment under the Code. Other parts of the notice of proposed rulemaking were previously adopted as final regulations. The proposed regulations being withdrawn also addressed the treatment of certain distributions not qualifying for tax-free treatment under Section 332 of the Code. The proposed regulations being withdrawn would have affected corporations and their shareholders.

You may be able to take a deduction for a home office, but in Steven Edward Ellison et ux. T.C. Memo. 2017-134) the Tax Court sided with the IRS in denying a deduction for a office in the home because the taxpayers failed to show they used any portion of the home regularly and exclusively for business. The Court also found one house they claimed rental losses on was not held for rent during the year at issue; for two of the other years the average rental period was seven days or less so the activity was not a rental activity. Finally, the Court found their logs of activity in real estate trades not credible, finding they included nonqualifying hours such as driving time, time taken to log journal entries, time before the taxpayers owned a property. In addition, the logs failed to account for mealtime and personal time. The denied their status as real estate professionals.

Tip of the Day

Don't dilute your brand . . . Having a reputation for a special skill, unique product, high quality, best customer service, etc. is one of the best ways to be more profitable than your competition. For many businesses it means that customers will keep returning and recommend you without having to do expensive marketing. But it's easy to lose such a designation. Some manufacturers have sold to big box stores and created a cheaper version of their product to get the business. In some cases those products have affected their brand image. The same can happen to a service provider who bids too low on a job and cuts corners to stay profitable. Make sure the risk is worth the reward.

 

July 13, 2017

News

Revenue Procedure 2017-43 (IRB 2017-31) revises procedures for applying for Treasury Department approval of a suspension of benefits under a multiemployer defined benefit pension plan that is in critical and declining status under Sec. 432(e)(9). Effective for applications submitted on or after September 1, 2017, the revenue procedure modifies and supersedes Rev. Proc. 2016-27 and is intended to facilitate the Treasury Department’s review in light of its experience in processing benefit suspension applications.

Failing to timely file and pay employment taxes is a serious issue. There are few excuses that the IRS accepts as reasonable cause for failure to deposit employment taxes. In Xibitmax, LLC (T.C. Memo. 2017-133) the petitioner was the sole owner and officer, was aware of the busness' employment and trust fund tax filing obligations but was unfamiliar with the process and procedure. Despite his own unfamiliarity, he tasked an administrative employee with the duty of preparing and filing the tax returns. This employee did not hold herself out as having any credentials, experience, or training in the preparation, filing, or payment of employment and trust fund tax returns. The taxpayer did not supervise or monitor the quality of the employee's work and had no system in place to do so. The Court found the taxpayer was by no means disabled fro ensuring it was meeting its statutory duties. Supervision of the output and quality of an employee's work product is a factor wholly under an employer's control. The Tax Court sustained both the failure to file, failure to timely pay and failure to deposit penalties.

Tip of the Day

Failed projects . . . It's happened to probably every company and every manager. You undertake a project--developing a new product, upgrading in-house software, etc.--but it turns out to be a failure. While it's tough to put a positive spin on the outcome, there are at least two steps you should take. First, conduct a review of the project. What went wrong? What went right? In all but rare instances, lessons learned from a failure can be put to use in future projects, products, etc. The project will really be a failure if you don't learn from it. Second, don't berate the team. Chances are they feel bad enough already. In most cases you want to keep the employees, so try to emphasize the good points. What was accomplished, what was learned, etc.

 

July 12, 2017

News

According to Treasury Secretary Steven Mnuchin the administration is on target to present a tax reform proposal no later than September. In addition, there continues to be hope that the legislation will be passed before the end of the year.

Often the distinction between taxable and nontaxable income is clear. Disability payments are income; worker's compensation is not because it's not based on the prior income or length of service of the recipient but on the injury. But things can get murky, particularly when it comes to payments received by policemen, firement, etc. In Jack Howard Taylor (T.C. Memo. 2017-132) the taxpayer was a North Carolina fireman for over 24 years before retiring on disability in 1991. At that time he began receiving from LGERS (Local Governmental Employees' Retirement System of North Carolina) a disability retirement allowance computed with reference to his age, length of service, and average final compensation. In a later year he also began receiving an FRSWPF (North Carolina Firemen and Rescue Squad Workers' Pension Fund) pension. For 2012 the taxpayer received information returns from LGERS and FRSWPF showing taxable distributions of $34,829 and $2,000, respectively, but reported only $2,324 of taxable retirement income. For 2012 he also failed to report as income certain distributions, an error he has since conceded. The Tax Court held the LGERS and FRSWPF distributions were not excludable from gross income as amounts received under workmen's compensation acts as compensation for injuries or sickness because they were retirement pensions determined by reference to the taxpayer's age or length of service, or his prior contributions.

Tip of the Day

Failure rate for start-up businesses . . . There's no question that it's much higher than for established entities, but there are often good reasons for that. For one, companies that have been in business for some time have ironed out the bugs and know the pitfalls. A second reason is that most start-ups tend to be undercapitalized and run through their start-up money before reaching profitability. Finally, the failure rate varies among types of businesses. Restaurants and other food service establishments require sufficient capital and take more management skills that many other small businesses. It doesn't help that they can be very sensitive to location, quality of product and service, etc. Whatever business you go into, get good advice up front. A CPA who's familiar with the industry can be a big help.

 

July 11, 2017

News

The IRS has released Notice 2017-38 (IRB 2017-30), a response to President Trump's Executive Order designed to reduce tax regulatory burdens. The interim report identifies eight tax regulations that impose an undue burden on taxpayers or add undue complexity to the tax laws. Of particular interest are the regulations associated with Sec. 2704, Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes (REG-163113-02) (regulations that would restrict discounts that affect the valuation of estates); temporary regulations under Sec. 752 (T.D. 9788) (rules for how liabilties are allocated under Sec. 752 solely for purposes of disguised sales); and final and temporary regulations under Sec. 385 (T.D. 9790) that address the classification of related-party debt as debt or equity for federal tax purposes.

You may be entitled to interest on overpayments of taxes. In Charles Garavaglia et ux. (T.C. Memo. 2017-131) the taxpayers paid some $207,000 to the U.S. Treasury in connection with a criminal case pending against them. The amount was considered restitution. The amount was later returned and the taxpayer sought interest on the amount. The Tax Court held the amount was not a "payment" and thus he was not entitled to interest.

Tip of the Day

Negotiating strategy . . . Don't reveal your strategy early in negotiations. Try to remain vague. Discuss what you need, but don't commit yourself. You'll get a better idea of what the other party wants and his absolute breaking points. You should bring your advisers in at the very start, but if you don't, don't commit anything to writing until you talk to them. Even if it's labeled a letter of intent, once talking points are reduced to writing, making changes later is much more difficult. Best advice? Before drafting anything, talk to your advisers and take a day or more to think about the negotiations.

 

July 10, 2017

News

The IRS has issued interim guidance to LB&I (Large Business and International) and SB/SE (Small Business/Self-Employed) IRS employees on initial contact with taxpayers in partnership examinations and elections into the BBA (Bipartisan Budget Act of 2015) centralized partnership audit regime for tax periods beginning after November 2, 2015 and before January 1, 2018.

In RERI Holdings I, LLC, Jeff Blau, Tax Matters Partner (149 T.C. No. 1) a partnership, paid $2.95 million in March 2002 to acquire a remainder interest in property. The agreement that created the remainder interest provided covenants intended to preserve the value of the subject property but also limited the remedy available to the holder of the remainder interest for a breach of those covenants to immediate possession of the property; in no event would the holder of the corresponding term interest be liable for damages to the holder of the remainder interest. On Aug. 27, 2003, the taxpayer assigned the remainder interest to U, a university. On its 2003 Form 1065, U.S. Return of Partnership Income, the partnership claimed a deduction under Sec. 170(a)(1) of $33,019,000. The Form 8283, Noncash Charitable Contributions, that the partnership attached to its return provided the date and manner of its acquisition of the contributed remainder interest but left blank the space for the “Donor's cost or other adjusted basis”. The Tax Court held:

Tip of the Day

Real estate changes . . . If you're investing in commercial real estate you should pick any new property carefully and review any existing properties you own. More than a few retailers are closing stores. That can affect you in a number of ways. First, if your property is close to a big box retailer that's closing, your property value could be affected if the big box was an important draw. Second, that open space is now available for other tenants and could depress the rent and selling price of your property. In some cases retail space is being turned into office space, becoming competition for commercial space. Single tenant properties are often the most vulnerable and may be hard to release after a tenant departs. Sometimes it's best to break the building into smaller spaces, but that can be expensive. Do your homework and review your properties regularly.

 

July 7, 2017

News

A House bill under consideration would cut IRS funding by some $149 million from current amounts and deny funding to enforce the individual health insurance requirement contained in the Affordable Care Act.

If you're making a charitable gift you can't retain control over the property. In George Fakiris (T.C. Memo. 2017-126) the taxpayer had purchased an old movie house with the objective of developing the property for housing. When difficulties arose he sought to contribute it (via a bargain sale) to a charitable organization (Richmond Dance). However the charity had yet to obtain tax exemption recognition from the IRS. The taxpayer decided to transfer the property to a different exempt organization (WEMGO) which could not sell the property for five years. The taxpayer retained the power to require WEMGO to transfer the property to Richmond Dance. The Court found the terms of the contract to direct the transfer of the property in the future made the gift to WEMGO conditional, and the possibility of that occuring was not negligible. Thus, no gift was made.

Tip of the Day

Using an outside contractor . . . You may want to make sure you have full rights in any design, content, etc. That may seem obvious, but sometimes the contractor retains a key part of the work. For example, the design, software, etc., incorporates a proprietary portion where the outside contractor licenses your use. Consider carefully before deciding that may not be a problem. For example, you may have unlimited right to use the design in the U.S., but you later decide to have the product made in Asia. You should be especially careful if you have to pay for the right to use a design or image each time it's used. And make sure you're not paying for plagiarized content or design. The more critical the issue is to your business, the better the attorney you should retain.

 

July 6, 2017

News

Just because a court has issued an opinion on a case doesn't mean the IRS considers the issue settled. The IRS can decide to announced it will "not acquiesce" in a decision. It may challenge the same issue with another taxpayer where it believes it might have a better case. In Action on Decision 2017-05 (IRB 2017-27) the IRS announced it will not acquiesce in Yosef A. Tsehay (T.C. Memo. 2016-200).

Distributions from an IRA or other qualified retirement plan before age 59-1/2 are generally subject to a 10% penalty. There are several exceptions, one is a distribution to an alternate payee under a qualified domestic relations order (QDRO) in a divorce proceeding. In Jeremy Ray Summers (T.C. Memo. 2017-125) the distribution did not qualify for this exception because it was made directly to the taxpayer rather than to his ex-wife. In addition, the distribution was made a month before the divorce decree was entered and, thus, not made pursuant to that order or any other judicial decree.

If you keep poor records the IRS can reconstruct your income using one of several methods. In Richard A. Canatella (T.C. Memo. 2017-124) the IRS used the bank deposits method to do so. In this approach bank deposits are considered income unless the IRS can tell they are from some other source or the taxpayer can prove the source of the funds. The taxpayer contended the IRS's analysis should be rejected because some of the deposits were classified incorrectly as income by the IRS. The Court noted that courts recognize that some errors are unavoidable when an indirect method is used to reconstruct income, especially where the taxpayer has failed to maintain adequate records. The Court allowed the results of the adjusted IRS analysis.

Tip of the Day

Measuring ad dollars . . . There are now more ways than ever to reach potential customers or clients. But not all are equally effective on a revenue generated per ad dollar spent basis. If you've got a product that is visually attractive (e.g., auto) television or print ads may be most effective. For some businesses coupons in print or online media are most effective. In the old days of direct mail you could code different mailings to see which worked best. With an email campaign you might be able to use a similar approach to measure response. With so many ad options you've got to be careful not to throw your money at the wrong one. Get good, independent advice.

 

July 5, 2017

News

The IRS has published final regulations (T.D. 9819) that allow the Commissioner of Internal Revenue to adopt a streamlined application process that eligible organizations may use to apply for recognition of tax-exempt status under Section 501(c)(3) Code. The final regulations affect organizations seeking recognition of tax-exempt status under Section 501(c)(3).

The IRS has updated the counties in Arkansas where victims of severe storms, tornadoes, straight-line winds and flooding that took place beginning on April 26, 2017 may qualify for relief. The additional counties include Prairie, White, and Woodruff. For more information go to www.irs.gov.

The Electronic Tax Administration Advisory Committee (ETAAC) released its annual report to the IRS and the Congress, which includes numerous recommendations on improving electronic security in the tax system and fighting tax fraud related to identity theft. The ETAAC is an organized public forum, chartered by the Congress, for discussion of electronic tax administration issues such as prevention of identity theft and refund fraud in support of the overriding goal that paperless filing should be the preferred and most convenient method of filing tax and information returns. To see the complete report go to Electronic Tax Administration Advisory Committee (ETAAC) Annual Reports .

In Jeremy M. Jacobs and Margaret J. Jacobs (148 T.C. No. 24) the taxpayers own the Boston Bruins (Bruins), a National Hockey League franchise based in Boston, Massachusetts. During the taxable periods in issue the Bruins played approximately one-half of their hockey games at their home arena in Boston and approximately one-half of their hockey games at away city arenas throughout the United States and Canada. The Bruins stayed at hotels when visiting away cities and contracted with the hotels for the provision of pregame meals to players and team personnel. The taxpayers deducted the full cost of pregame meals furnished to Bruins' players and personnel. The IRS issued the taxpayer's a notice of deficiency, determining that the cost of pregame meals was subject to the 50% limitation of Sec. 274(n)(1). The Tax Court disagreed, holding the taxpayers' provision of pregame meals to Bruins' players and personnel at away city hotels qualifies as a de minimis fringe benefit under Sec. 274(n)(2)(B), and therefore the cost of such meals is not subject to the 50% limitation of Sec. 274(n)(1).

Tip of the Day

Location, location, location . . . While, in this case the critical factor was parking. The business signed a lease for new space. The adjacent and only other space in the building was leased but not occupied. Turns out according to town code each of the professional practices required 30 spaces and there were only a total of 42. A variance was needed and that would add at least six months to the time to get permits to change the interior and do the construction work. That's assuming the contractor can still schedule his crews. Such issues may not arise in a small rural town where town code is not as strict and space may be available, but even many suburban communities put tight restrictions on construction, types of businesses, etc. On Cape Cod a certain restaurant chain found their standard design would not be allowed. Don't underestimate the problems you could encounter. If you're unfamiliar with the area, get local help from the start.

 

July 3, 2017

News

The IRS has issued corrections to final and temporary regulations (T.D. 9808), which were published in the Federal Register on Friday, January 6, 2017. These regulations are related to withholding of tax on certain U.S. source income paid to foreign persons, information reporting and backup withholding with respect to payments made to certain U.S. persons, and portfolio interest paid to nonresident alien individuals and foreign corporations. Revenue Procedure 2017-41 (IRB 2017-29) modifies and supersedes, in part, Rev. Proc. 2015-36, 2015-27 I.R.B. 20, which sets forth the procedures for issuing opinion and advisory letters on the form of qualified retirement plans submitted under the pre-approved plan program. The revenue procedure simplifies the current program by restructuring the current master and prototype and volume submitter pre-approved programs into a single program that increases the types of eligible plans and permits greater flexibility in plan design options. Notice 2017-37 (IRB 2017-29) contains the Cumulative List of Changes in Plan Qualification Requirements for Pre-Approved Defined Contribution Plans for 2017 (2017 Cumulative List). The 2017 Cumulative List identifies changes in the qualification requirements of the Internal Revenue Code that are required to be taken into account in a plan document submitted to the IRS under the pre-approved plan program for purposes of receiving an opinion letter.

The IRS has announced (IR-2017=116) the launch of Country-by-Country Reporting pages on irs.gov. These pages provide background information on Country-by-Country Reporting, frequently asked questions and other helpful resources, including a list of jurisdictions that have concluded Competent Authority Arrangements with the United States.

Tip of the Day

How's your store's appearance? . . . Unless you run a feed and grain store, the only general store for miles, or something similar, appearance is important. Peeling paint, leaks in the ceiling, dirty changing rooms, etc. won't help you get or keep customers. Some years ago we were in a department store in a upscale town and noticed severely worn carpets and commented to a friend that it looked like they were about to close the store. That was close. They filed for bankruptcy, reorganized and then rehabbed the store. Even suppliers may get concerned if they see your store falling apart. A fresh coat of paint and a thorogh cleaning may be all that's necessary. The same goes for service businesses. You don't want to see your accountant using old computers and printers, and you don't want to see your contractor show up in a truck that looks like it just came through a war zone. If you can't take an objective look, ask a friend to take a walk around your facility.

 

June 30, 2017

News

The IRS has released it's High-Income Returns, Tax Year 2014 report. This annual study provides detailed data on returns with adjusted gross income or expanded income greater than $200,000. The study also looks at high-income, nontaxable returns (HINTs) and the reason for nontaxability. For Tax Year 2014, there were almost 6.3 million individual income tax returns with an expanded income of $200,000 or more, accounting for 4.2 percent of all returns for the year. Of these returns, 9,692 had no worldwide income tax liability. This was a 24.2-percent decline from the number of returns with no worldwide income tax liability in 2013, and the fifth decrease in a row since the all-time high of 19,551 HINTs in 2009.

The IRS has released its Mid-May Filing Season Statistics for Individuals. This report is now available on theTax Stats Web page. Published three times per year, the reports include number of returns, total income, total tax, and share of income composed of capital gains, by adjusted gross income category. Data for the May report are based on returns processed through week 20 of the filing season.

When selling a business some of the proceeds received will be taxed as ordinary income, some as capital gain. Obviously, capital gain treatment is preferred. In Greenteam Materials Recovery Facility PN, Greenwaste Recovery, Inc., Tax Matters Partner, et al. (T.C. Memo. 2017-122) the taxpayer sold tangible assets, a building, land, a covenant not to compete, and the remainder, the largest part of the deal, goodwill and going-concern value. The last item largely represented contracts the partnerships had to provide waste collection from several municipalities. The IRS recharacterized the gains from these contracts as ordinary income, not as capital gain as the taxpayers reported. The taxpayers argued the sales of the contracts fall under Section 1253, which says that a taxpayer gets capital-gains treatment when it sells a “franchise” unless it has a continuing interest in the franchise after the transfer. The Court found the contracts to be franchises, noting the term franchise includes an agreement which gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities, within a specified area. The Court found Sec. 1253 applied because it the deal met the three criteria. The Court held the sale of the contracts produced capital gain.

Tip of the Day

Time for a vacation . . . Running a small business is tougher than most people know. Having a small staff that does a number of tasks is often the rule rather than the exception. Some employees may take only a short vacation or a couple of days here and there. That can be a problem for several reasons. First, employees that have certain responsibilities in the company should take a two-week vacation to insure they're not embezzling funds, cooking the books, etc. Problems can show up during a two-week absence that may not be spotted any other way. Second, if an employee can save the time, the business can end up with a large accrual on the books. After three years it could easily be six weeks. From an accounting standpoint that's a liability that has to be reported in the financials. From a strict business standpoint, the employee could decide to take most of the time at once--and that could put the business in a bind. Third, if an employee is so critical or you're so short-staffed that employees can't take two weeks at once, it shows a weakness in the company. If an employee can't take a vacation, how would the company fare if the employee quit or passed away?

 

June 29, 2017

News

Victims of the severe storms, tornadoes, straight-line winds, and flooding that took place beginning on April 28, 2017 in parts of Missouri may qualify for tax relief from the IRS. The President has declared that a major disaster exists in the State of Missouri. Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Missouri will receive tax relief. Individuals who reside or have a business in the following counties: Bollinger, Butler, Carter, Douglas, Dunklin, Franklin, Gasconade, Howell, Jasper, Jefferson, Madison, Maries, McDonald, Newton, Oregon, Osage, Ozark, Pemiscot, Phelps, Pulaski, Reynolds, Ripley, Shannon, St. Louis, Stone, Taney, and Texas may qualify for tax relief. The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after April 28, 2017, and before August 31, 2017, are granted additional time to file through August 31, 2017. This includes the estimated tax payment due on June 15, 2017 and the quarterly payroll tax returns due on April 30, 2017 and July 31, 2017.  Affected taxpayers that have an estimated income tax payment originally due on or after April 28, 2017, and before August 31, 2017, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before August 31, 2017. For additional information go to Tax Relief for Victims of Severe Storms, Tornadoes, Straight-line Winds, and Flooding in Missouri.

Just because you entered into an installment agreement doesn't mean the IRS can't maintain or file a tax lien to protect its interests. In Vladimir Roudakov (T.C. Memo. 2017-121) the taxpayer entered into an installment agreement to pay $80 per month toward satisfaction of his 1995-1997 liabilities which then exceed $200,000. The IRS advised the taxpayer on accepting the agreement that it would file an NFTL to protect the Government's interest. The Court noted that although the taxpayer desired to have the NFTL withdrawn, he provided the Settlement officer with no financial or other information to support his assertion that the NFTL's filing could cause him to lose his job or otherwise interfere with his future gainful employment. The Court held the IRS did not abuse its discretion.

When determining whether the amount of an offer-in-compromise is sufficient the IRS looks at the taxpayer's reasonable collection potential. But the IRS doesn't always do the calculations properly. In W. Zintl Contruction, Inc. (T.C. Memo. 2017-119) the IRS Settlement officer (SO) added the taxpayer's tax liabilities back to the appraised value to determine the going concern value. The Court held that the taxpayer's going concern value had to take into account any tax liabilities because any buyer of the business as a whole would take them into account.

Tip of the Day

Specific bequests in a will . . . Estates have a nasty way of creating rifts among the closest relatives. And often it's not the size of the bequest, but one or more items. Fred may not care that he got the larger share of the inheritance, he's upset he didn't get the lake property where he spent summers and proposed to his wife. Because of the way the will was written the property had to be sold and the proceeds divided. Often the best approach is to talk to the heirs and find out what they want and either put that as a specific bequest in the will or gift the property before you pass.

 

June 28, 2017

News

Net losses from rental real estate activities are generally limited to $25,000 a year and that exemption is phased out if your AGI exceeds $100,000. An exception is provided for real estate professionals, those who spend more than 750 hours and more than half their time in the real estate trades during the year. In Jamie Ostrom (T.C. Memo. 2017-118) the taxpayer owned four single-family residential properties. The taxpayer claimed to meet the participation requirements and presented log sheets and two monthly calendars that reflected the hours worked. The Court was skeptical, noting here evidence and testimony were inconsistent, the log sheets provided only generic and repetitious descriptions of services she performed. The Court said the number of hours claimed on the log sheets was improbable, the hours claimed appeared excessive and unrealistic, given what was known about her other activities. The Court declined to accept the claims of hours devoted to real property trades and held she did not qualify for treatment as a real estate professional.

If you claim to be engage in a trade or business and want to deduct associated expenses, you have to charge for your services. In Willie Lewis et ux. (T.C. Memo. 2017-117) the taxpayer did not charge for his services as a minister and had no revenue from his writing activities. The Court noted that to be engaged in a trade or business within the meaning of Sec. 162 (deducting business expenses) "the taxpayer's primary purpose for engaging in the activity must be for income or profit.” The Court also noted the taxpayer produced no accounting records, bank statements, invoices, or any other records traditionally associated with a business operating for profit, he merely submitted credit card statements and a summary thereof showing certain expenses. The Court found because the taxpayer was not engaged in the activities for profit and thus his deductions were limited to his income from the activities. Since there was no income, the Court disallowed all the deductions. The Court added that even if the taxpayer had a profit motive, the taxpayer failed to substantiate the expenses underlying the claimed deductions.

Tip of the Day

Scammers steal closing costs . . . In a new scam, hackers break into the email accounts of buyers or real estate professionals to get information about upcoming real estate transactions. The hacker then sends an email to the buyer, posing as the real estate professional or title company. The bogus email says there has been a last minute change to the wiring instructions, and tells the buyer to wire closing costs to a different account. But it’s the scammer’s account. If the buyer takes the bait, their bank account could be cleared out in a matter of minutes. Don't automatically act on emails if the end result involves providing passwords, personal information, etc., unless you know the address and are expecting the email. There's nothing wrong with calling the party to confirm they sent the email. Most such scams work off the premise the recipient will be less than deligent and trusting. Be particularly suspicious of email attachments. And don't automatically reply to an email. Use the address from your address book.

 

June 27, 2017

News

The IRS recently began sending letters to a relatively small group of taxpayers whose overdue federal tax accounts are being assigned to one of four private-sector collection agencies. Taxpayers should be on the lookout for scammers posing as private collection firms. The IRS-authorized firms will only be calling about a tax debt the person has had – and has been aware of--for years. The IRS would have previously contacted taxpayers about their tax debt.

Generally, taxpayers who file a joint return are jointly liable for the taxes and any penalties that might arise from an inaccruate return. But either spouse may file for "innocent spouse relief" if they meet certain criteria. In Maren K. Conrad a.k.a. Maren K. Conrad-Mininger, Petitioner, and Jason E. Mininger, Intervenor (T.C. Memo. 2017-116) the Court denied such relief to the former wife. The deficiency resulted from fictious deductions taken on a partnership return that produced a substantial net loss that was passed through to the petitioner. The Court noted the erroneous item was attributable to the petitioner and she knew the items on the return were fictious. The petitioneralso knew of the undestatement and the Court noted it would not be inequitable to hold the petitioner liable for the deficiency. The petitioner did not show she would suffer economic hardship if she was not relieved of joint liability and she was not current with her tax returns.

Tip of the Day

One last look . . . You and your two partners have just spent the last four weeks putting together the new website. You've tested it and you're ready to go live. If you haven't done so yet, get a couple of people who haven't worked on the site a chance to use it. You never can tell what a third party will find. Could be as innocent as a couple of spelling errors, or as embarrassing as major faux pas that you looked over a dozen times (or added in the last revision). Bad links, a picture that should be, but isn't there, etc. can make you look nonprofessional. You probably don't need a professional to review it; a sharp secretary, a spouse, or even a son or daughter. Make sure someone from your audience reviews it. The site could be fine for natural-born American, but have an offensive reference to someone from Latin America, Europe, etc. Much the same approach applies to memos, products, reports, etc.

 

June 26, 2017

News

Individuals or businesses that oppose the Federal tax laws sometimes use frivolous tax arguments to enrich themselves or evade paying tax. One such argument is a frivolous redemption claim. A frivolous redemption claim involves the filing of a return reporting false income and claiming excessive false income tax withholding. Tax returns with a frivolous redemption claim report income and the taxpayer does not calculate any tax due or claims a refund of the excessive withholding. The Treasury Inspector General for Tax Administration (TIGTA) initiated an audit to evaluate the IRS’s decision to discontinue the use of the Electronic Fraud Detection System predictive modeling filters to identify individual tax returns claiming potentially frivolous Original Issue Discount (redemption claim) arguments. The audit found the IRS’s identification processes and procedures are contributing to the reduction in confirmed frivolous redemption claims it identifies. TIGTA’s analysis of 337,273 tax returns in which the taxpayer reported excessive withholding identified 58,248 returns that were not evaluated for referral to the Frivolous Return Program because the refund fell below the IRS’s processing dollar tolerance. For the full report go to www.treasury.gov/tigta/auditreports/2017reports/201740040fr.pdf.

In Corbin A. McNeill et ux. (148 T.C. No. 23) the taxpayers filed jointly their 2003 Form 1040, claiming deductions for losses—reflected on a Schedule K-1—flowing from a tax shelter. The IRS issued to the partnership an FPAA disallowing the loss deductions and asserting an accuracy-related penalty under Sec. 6662. The taxpayer-husband, as the TMP of a partner other than the partnership's TMP, paid to the IRS the tax liability and interest and instituted a partnership-level proceeding in District Court. The proceeding was dismissed without a ruling on the taxpayers' partner-level defenses to the accuracy-related penalty under Sec. 6662. The IRS assessed the penalty and initiated collection procedures. After receiving a final notice of intent to levy and a notice of Federal tax lien filing, the taxpayers requested a hearing under Sec. 6330. During their hearing, the taxpayers challenged the assessment of the penalty. The Appeals officer issued a notice of determination sustaining the lien filing and the proposed levy and determining that the taxpayers could not raise the issue of their underlying tax liability. The Tax Court held that under Sec. 6330(d)(1), as amended by the Pension Protection Act of 2006, the Court had jurisdiction to review the IRS's notice of determination when the underlying tax liability consists solely of a penalty that relates to an adjustment to a partnership item excluded from deficiency procedures by Sec. 6230(a)(2)(A)(i).

Tip of the Day

Second time's the charm . . . Or not! Customers, constituents, the general public, etc. often forgive a company's, etc. first mistake--but are much less tolerant of the second. One manufacturer had a major design fault in it's product. It wasn't a safety issue, it was just a cosmetic fault where the paint discolored on units more than about two years old. Not attractive on a unit that should easily last five or more years. Customers complained, but the units still worked. The company reworked the paint mixing machinery and all was well for about two years when there was another error with discolored and flaking paint. Customers weren't nearly so understanding the second time. And this time the company had no excuse.

 

June 23, 2017

News

The Senate has released its version of the bill to replace the Affordable Care Act. While there are a number of differences between it and the House version, but it generally repeals many of the same tax provisions. Here are the highlights:

The IRS has issued an updated FAQ with respect to PTIN (preparer tax identification numbers} following the U.S. District Court upholding the IRS's authority to require PTINs but enjoining the Service from charging a user fee for the issuance or renewal of PTINs. Registration and renewal of PTINs, which was suspended, is resuming but without charge.

Employment-related identity theft occurs when an identity thief uses another person’s identity to gain employment. Taxpayers may first realize they are a victim when they receive an IRS notice of a discrepancy in the income they reported on their tax return. Each year, the IRS receives about 2.4 million tax returns filed using an Individual Taxpayer Identification Number (ITIN) with reported wages, an indicator of potential identity theft. In an audit the Treasury Inspector General for Tax Administration (TIGTA) identified that IRS processes are not sufficient to identify all employment identity theft victims. For example, 497,248 victims, who did not have a tax account in Processing Year 2015, were not identified even though identity thieves electronically filed tax returns with evidence that they used the victims’ Social Security Numbers (SSN) to gain employment. For another 60,823 victims, who have a tax account, the IRS did not update their account with an employment identity theft marker. In addition, IRS processes do not identify employment identity theft when processing paper tax returns. TIGTA reviewed a statistically valid sample of 292 paper tax returns filed in Processing Year 2015 by individuals with an ITIN. These tax return filers reported wages on 150 (51.4 percent) of the returns and attached a Form W-2, Wage and Income Statement, indicating they used someone’s SSN to gain employment. As a result, TIGTA projects that the IRS did not identify 272,416 victims of employment identity theft for the 685,737 paper tax returns filed by ITIN holders reporting wages in Processing Year 2015. TIGTA also identified that the IRS does not have processes to identify employment identity theft in the IRS’s Form W-2 perfection processes or to notify the Social Security Administration of the crime when both the victim’s name and SSN are used by an ITIN holder. To read the full report go to https://www.treasury.gov/tigta/auditreports/2017reports/201740031fr.pdf

Tip of the Day

Deals that become too complicated . . . Sometimes each party spends so much time trying to protect itself by putting additional language in the contract that the transaction becomes too complex. Once you've reached that point it may be too late to go back. If you see the deal heading in that direction, consider a time out. Maybe the best idea is to stop and reconsider your approach. You might skip the guarantees and agree to a lower price. How you handle the situation depends on the deal. Buying a company that will double the size of your business? The transaction is likely to be complicated and you want the guarantees. Buying a division of another company just to get the building and equipment? That could be structured as a simple asset deal. Simplifying the transaction won't always work, but its worth a try.

 

June 22, 2017

News

The IRS announced (IR-2017-109) it is now accepting renewal applications for the Individual Taxpayer Identification Numbers (ITINs) set to expire at the end of 2017. The agency urges taxpayers affected by changes to the ITIN program to submit their renewal applications as soon as possible to avoid the rush.

You can deduct losses incurred in a business activity carried on for profit. But expenses for a not-for-profit activity are limited to the income generated. In Allen T. Stettner et ux. (T.C. Memo. 2017-113) the taxpayer was engaged in auto racing. Income from the activity was generated from prize money ($300 to $3,000 for winning; a small amount for participating and a variable amount depending on finish). The taxpayer also received money from a single sponsor of $1,200 annually. He received discounts on parts purchased from other sponsors. The taxpayer made a timely election to defer the determination of presumption an activity is engaged in for profit until the close of the fourth taxable year. But the taxpayer had net losses for the test years and were not entitled to the presumption the activity was engaged in for profit. The Court then looked to the nine factors generally examined to ascertain if an activity is engaged in with a profit motive and found five out of the nine factors favored the IRS and one factor was neutral. The Court found the taxpayers did not engage in the activity with a profit motive.

Tip of the Day

Partnerships that sour . . . Going into business with your best friend doesn't always work out well. You may have been best friends for years, but under the pressure of a business that's in trouble or, conversely, one that's doing exceedingly well, disputes can easily arise. Ideally, you should have rules in place to handle such disputes when you starting the business. That rarely happens. There are options. One is to have a board of directors to make recommendations or a final decision. Another is to have each partner responsible for separate activities. That could be two separate businesses or different areas. For example, one is in charge of operations; the other finance and marketing. Avoiding constant close contact may help reduce friction. A third option is to seek a mediator or counseling. Sometimes the differences are insurmountable. In that case splitting up may be the only viable option. But keep in mind that if the business was successful splitting up the team could prove disastrous.

 

June 21, 2017

News

Settlements or awards for physical injury or physical sickness are excludable from income, but amounts received for other reasons such as age discrimination are not. In Michael L. Devine, Jr. et ux. (T.C. Memo. 2017-111) the wife was a noncommissioned National Guard officer who submitted complaints of sexual discrimination and sexual harassment. The taxpayer did not allege that she had suffered any physical injury. Subsequently, she made a submission listing 15 specific types of damage she had allegedly suffered, but the list included no assertion of any physical injury. The taxpayer made a monetary offer to settle which was accepted by the National Guard. Neither the taxpayer's offer no the settlement agreement made any reference to any form of physical injury. The taxpayer received a Form 1099-MISC for the amount of the settlement. The Court found the settlement amount taxable and sustained the IRS imposition of the accuracy-related penalty.

Tip of the Day

Renegotiating a lease . . . If you rent retail space for your business you may have the upper hand in many regions of the country. More than a few retailers have announced closing a large number of stores and several have gone out of business entirely. In addition, a number of casual dining chains have closed locations. While some malls in attractive locations have limited vacancy, smaller malls, strip centers, less visible centers, etc. may have higher vacancies. If you lease is coming up for renewal or you're looking for space you may be able to take a hard line on negotiations. That might include more allowances for alterations, lower rent, a free rent period, etc. Because the situation could continue to deteriorate, you should have an option to get out of any long-term leases early. What about current leases? You may be able to renegotiate and gain some concessions. That's particularly true if you have a strong position, such as being a major draw for the center. Get good advice and have a real estate attorney review your lease.

 

June 20, 2017

News

In order to secure an interest deduction you've generally got to show the use of the loan proceeds. In Larry Geneser (T.C. Memo. 2017-110) the taxpayer borrowed to pay certain business expenses but he also paid personal expenses. The taxpayer introduced no evidence that would allow the Court to make any reasonable allocation between personal expenses and business expenses for the loan proceeds received. As a result the court found the taxpayer was not entitled to an interest expense deduction. The Court also found that termination payments he received from his work as an independent contractor acting as an insurance agent were subject to the self-employment tax.

You may be able to avoid filing or claim deadlines if you can show you were "financially disabled". Under Sec. 6511 an individual is financially disabled if he or she is unable to manage his financial affairs by reason of a medically determinable physical or mental impairment . . . which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” That's what the taxpayer claimed in Shung H. Chan (U.S. Court of Appeals, Tenth Circuit). But you've got to prove impairment by submitting a physician's statement containing the information required by the IRS. Among the requirements are a physician's medical opinion dthat the physical or mental impairment prevented the taxpayer from managing his financial affairs and that the impairment was or can be expected to result in death or that it lasted, or can be expected to last, for a continuous period of not less than 12 months. Here the taxpayer could not show he met the requirements.

Tip of the Day

Short-term rentals . . . Renting out your house or vacation home for a short time period such as weekly. That type of rental may not fall under the same rules as renting a home for longer periods such as a month or more. In many states such short-term rentals are subject to sales tax or "meals and rooms" tax which can be higher than the usual sales tax. You don't have to be a registered business to be required to collect and pay the tax. Check the rules for your state.

 

June 19, 2017

News

Sec. 267(a)(2) defers deductions for expenses paid by a taxpayer to a related person until the payments are includible in the related person's gross income. Sec. 267(b) defines the “relationships” that bring this statute into play. Sec. 267(e) provides that, for purposes of applying subsection (a)(2), an S corporation and “any person who owns (directly or indirectly) any of the stock of such corporation” shall be “treated as persons specified in a paragraph of subsection (b).” Sec. 267(e) thus deems S corporations and their shareholders to be “related persons” regardless of how much or how little stock each shareholder individually owns. Sec. 267(c), which provides rules for constructive ownership of stock, provides that stock owned by a “trust” is deemed constructively owned by the beneficiaries of the trust. In Steven M. Petersen et ux.; John E. Johnstun et ux. (148 T.C. No. 22) the taxpayers were shareholders of a closely held S corporation. The corporation formed an ESOP for the benefit of its employees and transferred S stock and cash to the related ESOP trust. During 2009 and 2010 the corporation accrued payroll expenses for employees who participated in the ESOP, but a portion of these expenses remained unpaid at the end of each year. The corporation claimed deductions, and the taxpayers as shareholders of S claimed flowthrough deductions, for these accrued but unpaid payroll expenses. The IRSD disallowed these deductions on the ground that the ESOP participants were beneficiaries of a “trust”; that these employees were deemed by Sec. 267(c) to be constructive owners of the S stock held by the trust; and hence that the ESOP participants and S were related persons for purposes of Sec. 267(b) and (a)(2). The Tax Court held the entity holding the S stock for the benefit of the ESOP participants is a “trust” within the meaning of Sec. 267(c). Sec. 267(c)(1) thus deems the stock held by the trust to be owned by the trust's beneficiaries, viz., the S employees who participated in the ESOP. The Court also held the corporation and the ESOP-participating employees are deemed by Sec. 267(e) to be related persons for purposes of Sec. 267(b). Sec. 267(a)(2) accordingly operates to defer S' deductions for the accrued but unpaid payroll expenses to the year in which such pay was received by the ESOP employees and includible in their gross income.

Tip of the Day

Deducting warranty expense . . . If you purchase an extended warranty for an auto used for business purposes, you can't deduct the full amount in the year of purchase. You've got to amortize the cost of the life of the warranty. Take the full cost and divide by the number of months in the warranty period. Multiply the number of months the warranty was in effect for the year by the monthly amount. For example, if you purchased the warranty September 1, 2006, deduct 4 months of the cost in 2006, 12 months in 2007, etc. If the auto isn't used 100% for business, you can only deduct the portion that applies to the business.

 

June 16, 2017

News

The IRS cancelled its planned June 15-19 e-Services system upgrade. State users will be able to submit new or update existing state e-file coordinator applications and TDS applications until the upgrade begins later this summer. The IRS will communicate the schedule for the e-Services platform upgrade and provide updates on user impact well in advance of any changes.

You may be entitled to an award if you provide the IRS with information on a taxpayer who owes additional taxes and/or penalties. But there are several hurdles to surmount. In James Awad (T.C. Memo. 2017-108) the petitioner reported on a taxpayer and family members who had unreported foreign bank accounts. The IRS recovered over $2 million as a result of an investigation, but denied the petitioner's claim for a whistleblower award. Following the death of her husband, the wife made a voluntary disclosure of the foreign account. Although the whistleblower office forwarded the petitioner's informaton to the division that examined the taxpayer, the revenue agent who conducted the examination denied using it. The Court noted there was nothing in the record that showed or even suggested otherwise. The Court held that the IRS did not have to make an award to the petitioner.

Tip of the Day

Don't wait to take action . . . You should be continually monitoring your business. While there are many metrics available to measure business performance, often just a few will be all that's needed to get a good handle on your business. For example, year-to-year sales comparisons and profit margin trend are likely to be early tipoffs that something is amiss. Other metrics such as inventory turnover, may be confirming indicators and can pinpoint problem areas. But once you have early signs of a problem you should investigate further and, if action is warranted, do so quickly. More than one business has run into major problems or failed because management didn't act quickly enough. Turning around a business that's been on the decline for a while requires more drastic solutions. Now, instead of a hiring freeze you may have to lay off employees. The longer you wait, the less options you may have. Don't act rashly, but don't procrastinate.

 


Copyright 2017 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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