The IRS issued final regulations under which qualified subchapter S subsidiaries (QSubs) and other disregarded entities—rather than the entities’ owners—are responsible for reporting and paying employment taxes. The rules represent a change from temporary provisions of Notice 99-6, under which either the entities or their owners could be regarded as
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TOPICS / TAX
Business tax
Embezzlement No Excuse
The Third Circuit recently affirmed a district court’s opinion holding a corporation liable for payroll taxes embezzled by its payroll agent. Pediatric Affiliates PA of New Jersey (Pediatric) hired PAL Data Processing Inc. (PAL) to handle its payroll needs. PAL’s founder, Menachem Hirsch, would routinely send Pediatric a tax form
Call in the Pros
Small businesses, payroll companies and tax professionals: The IRS wants to answer your calls. The Service is sponsoring free monthly phone forums—on the national and local levels—covering topics such as withholding requirements for foreign workers, powers-of-attorney, energy credits and identity theft prevention. The presentation is followed by a question-and-answer session.
Small Biz Burdens
Small businesses in the U.S. face a heavy burden when complying with income and employment tax laws, according to preliminary results of an IRS survey of compliance burdens Among the tax activities performed by businesses with less than $10 million in assets—including recordkeeping, working with a paid professional, completion and
S Corporation Profits or Payday
EXECUTIVE SUMMARY CPAs can help their clients determine what is a reasonable salary to pay shareholder employees (SEs) of S corporations, thus satisfying an IRS priority to collect proper amounts of employment taxes. Distributions, including “disguised distributions” such as a loan to an SE by the corporation or in-kind
You Say Omit, I Say Understate
The Tax Court recently held that an understatement of gain by a partnership due to overstating its basis on a section 754 election did not result in an omission of gross income. Thus a proposed gain adjustment by the IRS was not timely, since it occurred after the expiration of
No “Red Magic” for Heinz
Many companies engage in stock buyback programs, or redemptions, often for financial reasons but occasionally for tax purposes. In May, the Court of Federal Claims denied a $42.5 million refund sought by processed-food manufacturer H.J. Heinz Co. for a claimed loss relating to a redemption. In the early 1980s, Heinz
Put the Proof on Paper
A pair of recent Tax Court memos emphasized the longstanding rule of Welch v. Helvering, 290 U.S. 111 (1933), that taxpayers have the burden of proof when challenging an IRS determination. If the IRS audits a return, it is entitled to not take the taxpayer’s word on expenses, deductions and
Counting Escrows
The First Circuit Court of Appeals has upheld the Tax Court in Burke v. Commissioner , 99 AFTR 2d 2007-941. In so doing, the courts underscored the IRS’s position that distributed income from a partnership must be recognized as taxable income even when it is held in escrow by the
Look to Audit Bottom Line, Says IRS
Experience from its expanded number of audits of corporate returns will allow the IRS to work smarter in the future, the agency said, as it acknowledged spending more time on audits that came up empty of additional tax. The IRS rebutted a report in April by a research organization associated
Disallowed Idemnity Deduction Blues
From time to time, corporate officers and shareholders agree to indemnify their corporations for certain expenses and losses. The taxpayer would prefer to claim an ordinary loss deduction instead of a capital loss or, worse, a nondeductible payment. The Sixth Circuit Court of Appeals recently denied such a claim. Isaac
Heavy Price for Ignoring Levy Notice
In U.S. v. MPM Financial Group Inc., the Sixth Circuit scolded the defendant for exercising poor internal controls as it upheld a penalty for failure to comply with a notice of levy against one of its employees, who was also the corporation’s co-owner and president. Because the employer did not
35% Flat Tax Hits Non-CPAs
A C corporation that provides accounting services doesn’t have to be owned by or employ CPAs to be taxed at the flat 35% personal-services corporation rate of section 11(b)(2), according to a recent Tax Court ruling. In Rainbow Tax Service, Inc. v. Commissioner, 128 T.C. No. 5, the taxpayer was
Incentives for Businesses in Distressed Communities
Since the mid-1990s, Congress has tried to help businesses operating in certain low-income and economically disadvantaged areas. This has taken the form of tax credits and deductions for businesses that locate in, and hire residents from, those areas. These inducements may be of interest to companies looking
IRS, B&D Tool Up for Trial
By reversing a district court’s grant of summary judgment that originally favored the taxpayer (see “Tax Matters,” JofA, March 05, page 88), the Fourth Circuit Court of Appeals opened the door for further interpretation of the “sham transaction” rule as it relates to contingent liability transactions. The case, involving Black
Horse Sense Applied to Startup
In its first ruling of 2007, the Tax Court concluded that a woman could deduct expenses of for-profit horse boarding and training that later grew into a business. Had the IRS prevailed, taxpayers who engaged in a for-profit activity with the hope it would grow into a full-fledged trade or
S Corporation Update
EXECUTIVE SUMMARY S corporations have become the dominant business entity type, in part because requirements for electing the status have been relaxed and clarified. An S corporation may now have more shareholders because certain family members may be counted as a single shareholder. When an
The Choice-of-Entity Maze
EXECUTIVE SUMMARY When advising clients on the choice of business entity, CPAs should consider the advantages and disadvantages of each type. If more than one entity is involved, CPAs should also determine whether clients can deal with the complexity of the resulting structure. The many issues
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From The Tax Adviser
March 31, 2026
Current developments in taxation of individuals: Part 1
March 31, 2026
Current Developments in Taxation of Individuals: Part 1
March 6, 2026
