The IRS has proposed amending existing regulations under Sec. 312 (effect on earnings and profits (E&P) of corporate distributions) and Sec. 381 (carryovers of tax attributes in certain corporate acquisitions) to clarify that in certain corporate reorganizations, the “acquiring corporation” succeeds to the full E&P account of the transferor corporation
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Business tax
Colorado’s “Amazon” law requiring out-of-state retailers to report sales held to be unconstitutional
The U.S. District Court for the District of Colorado has held that the Colorado law requiring out-of state retailers to report information about customers’ purchases to each customer and to the Colorado Department of Revenue (DOR) violated the Commerce Clause of the United States Constitution (Direct Marketing Ass’n v. Huber,
IRS wins second appeal of TIFD III-E
The Second Circuit Court of Appeals for a second time reversed the judgment of a district court against the IRS in the long-running Castle Harbour/TIFD III-E case involving the characterization of two foreign banks’ interests in a partnership. The Second Circuit again held that the foreign banks’ interests in the
Don’t neglect to elect, part III
As a follow-up to the June 2010 and January 2011 Tax Practice Corner columns “Don’t Neglect to Elect” and “Don’t Neglect to Elect, Part II,” here are elections available to estates, partnerships and individuals. ESTATES Estate tax portability election. As a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job
Better odds for pro gamblers’ business deductions
Recently, professional gamblers’ luck prevailed as the Tax Court changed directions on the deductibility of nonwagering business expenses. The Tax Court in Mayo (136 T.C. 81 (2011)) partially overruled its precedent, Offutt (16 T.C. 1214 (1951)). Offutt allowed the deduction of wagering losses only to the extent of winnings and
Roth IRAs cannot be S corporation shareholders, Ninth Circuit holds
The Ninth Circuit, affirming the Tax Court, held that a corporation whose sole shareholder was a Roth IRA was not a valid S corporation when it was created in 2003 (Taproot Administrative Services, Inc., No. 10-70892 (9th Cir. 3/21/12), aff’g 133 T.C. 202 (2009)). The taxpayer who established the Roth
Tax Court disallows cost segregation of apartment building components
In a case exploring the extent of allowable cost segregation in depreciable rental real estate, the Tax Court held that all but a small handful of items identified by the building’s owner had to be depreciated over the life of the building (AmeriSouth XXXII, Ltd., T.C. Memo. 2012-67). AmeriSouth, a
IRS issues foreign-targeted bond guidance
The IRS issued interim guidance Thursday (Notice 2012-20) on registration of foreign-targeted bonds and provided transitional relief for withholding agents on the related portfolio interest exception. The IRS said it had received questions about these and other implications of the repeal of the foreign-targeted bond rules under Sec. 163(f)(2)(B) by
2012 automobile depreciation limits released
The IRS on Friday issued the 2012 inflation adjustments to the depreciation limitations and lease inclusion amounts for certain automobiles under Sec. 280F (Rev. Proc. 2012-23). For passenger automobiles (other than trucks or vans) placed in service during calendar year 2012 to which 50% first-year bonus depreciation applies, the depreciation
Temporary regs distinguish capital improvements from repairs
Late in 2011, the IRS issued long-awaited temporary and identical proposed regulations (T.D. 9564; REG-168745-03) regarding the treatment of expenditures incurred in acquiring, producing or improving tangible assets, including rules on determining whether costs related to tangible property are deductible repairs or capital improvements. The temporary regulations clarify and expand
Built-in gains tax issues
Millions of corporations have found S corporation status to be beneficial for both federal and state income tax purposes. When a corporation makes an election to be taxed as an S corporation, its shareholders generally are taxed on their allocable shares of income and may—subject to limitations—deduct their allocable shares
LLC member participation rules proposed
The IRS issued proposed regulations (REG-109369-10) that would redefine “interest in a limited partnership as a limited partner” for purposes of determining material participation under the Sec. 469 passive loss rules. Under Sec. 469(h)(2), losses from an interest in a limited partnership are presumptively treated as passive losses by providing
Eighth Circuit affirms S corporation shareholder’s compensation was not reasonable
The Eighth Circuit affirmed the District Court for the Southern District of Iowa’s decision that an S corporation shareholder’s $24,000 salary was not reasonable compensation and that the $91,044 salary determined by the government’s expert witness was (David E. Watson, P.C., No. 11-1589 (8th Cir. 2/21/12)). At issue is a
President signs payroll tax cut extension bill; new Form 941 released
On Wednesday evening at the White House, President Barack Obama signed into law the Middle Class Tax Relief and Job Creation Act of 2012, H.R. 3630. On Thursday, the IRS released a revised Form 941, Employer’s Quarterly Federal Tax Return, to reflect the extended payroll tax cut. The act extends
Congress passes payroll tax cut extension
On Friday, the House of Representatives and the Senate both passed a bill that will extend the reduced 4.2% Social Security tax rate through the end of the year (The Middle Class Tax Relief and Job Creation Act of 2012, H.R. 3630). The vote was 293–132 in the House and
Partnerships can issue Schedules K-1 electronically
The IRS issued Rev. Proc. 2012-17, which contains rules partnerships must follow if they want to supply Schedules K-1, Partner’s Share of Income, Deductions, Credits, etc., electronically. The guidance is effective Feb. 13, 2012. Failure to furnish the Schedule K-1 as required in Rev. Proc. 2012-17 can be deemed a
President’s budget proposes AMT elimination, tax reform
President Barack Obama unveiled his proposed budget for fiscal year 2013 on Monday. Included in its 256 pages are several tax reform proposals, including plans to eliminate the alternative minimum tax (AMT), to repeal LIFO, and to tax dividends of high-income taxpayers at ordinary income rates. The budget estimates that
Employer health coverage questions addressed
The IRS and Treasury Department, along with two other federal departments, on Thursday further described planned guidance on provisions for employer-sponsored health coverage mandated by the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, scheduled to take effect in 2014. Treasury and the IRS issued Notice 2012-17 covering frequently
Guidance issued on work opportunity credit for veterans
The IRS issued a notice on Thursday that gives employers guidance on two new tax credits for qualified veterans and provides extra time to comply with some of the credits’ requirements (Notice 2012-13). The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the work opportunity tax credit
Congress repeals 3% withholding, enacts worker credit for veterans
On Nov. 21, President Barack Obama signed into law an act (P.L. 112-56) that repeals a 3% government contractor withholding requirement. The act removes Sec. 3402(t), which required withholding of 3% of payments by the federal or state governments or their instrumentalities or subdivisions (including multistate agencies) to any person
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