For the second time in a week, a federal circuit court of appeals has handed the IRS a defeat on the issue of whether an overstatement of basis amounts to an omission from gross income for purposes of invoking the longer, six-year limitation period for assessing tax under IRC §
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TOPICS / TAX
Individual income taxation
IRS Will Allow Costs of Breast Pumps as Deductible Medical Expenses
In a reversal of long-standing policy, the IRS announced it will treat expenses for breast pumps and supplies that assist in lactation as deductible medical expenses (Announcement 2011-14). The IRS also said that amounts that taxpayers are reimbursed for these expenses under a flexible spending arrangement, Archer medical savings account,
Another Circuit Says Overstatement of Basis Is Not an Omission From Gross Income
The ongoing controversy over whether a taxpayer’s overstatement of basis triggers a six-year statute of limitation period continues as the Fourth Circuit has held that the extended period does not apply (Home Concrete & Supply, LLC, No. 09-2353 (4th Cir. 2/7/11)). The taxpayers had artificially overstated the bases in their
IRS Announces Second Offshore Voluntary Disclosure Program
On Tuesday, the IRS announced that it is starting a new program designed to bring money held in foreign accounts back into the U.S. tax system and to help taxpayers with income from offshore accounts to comply with federal tax law. Under the program, taxpayers that disclose previously undisclosed foreign
Final Regs Issued on Treating Musical Works as Capital Assets
The IRS issued final regulations on Friday governing how to elect to treat the sale or exchange of a musical work or copyright in a musical work as a sale or exchange of a capital asset (TD 9514). The IRC § 1221(a)(3) definition of capital asset excludes certain property held
Foreign Housing Expense Limitations for 2011 Released
The IRS has provided the inflation-adjusted limitations on foreign housing expenses for 2011 (Notice 2011-8). Under IRC § 911(a), a qualified individual can elect to exclude from gross income his or her foreign earned income and housing costs. Section 911(c)(1) provides a formula for determining the excludible amount of the
IRS Revises Withholding Rules for Nonresident Alien Employees
On Wednesday, the IRS announced the 2011 procedures for withholding on wages of nonresident alien employees who work in the United States (Notice 2011-12). The new procedures apply to wages paid on or after Jan. 1, 2011. In 2010, special withholding procedures were instituted for nonresident aliens because they were
Individual Insurance Mandate Held Unconstitutional Again
A second federal district court has held that the individual insurance mandate in the health care reform legislation is unconstitutional (Florida v. Department of Health and Human Services, No. 3:10-cv-91-RV/EMT (N.D. Fla. 1/31/11)). And, in this case, the court has refused to sever the mandate from the rest of the
Fifth Circuit: IRS Lacked Diligence in Notifying Taxpayer
The Fifth Circuit reversed and remanded a Tax Court decision in a case the Tax Court had dismissed for lack of jurisdiction due to the taxpayer’s late filing of her petition contesting the IRS’ denial of innocent spouse relief. The appellate court held that the original notice of determination sent
How the IRS Examines Repair and Maintenance Costs
Taxpayers are generally allowed to deduct the cost of making incidental repairs to their property used in carrying on any trade or business under IRC § 162 and Treas. Reg. § 1.162-4. However, to be deductible currently, a repair cost must not be subject to capitalization under IRC § 263(a).
Ponzi-Scheme Losses: Indirect Investor and State Tax Issues
Ponzi schemes continue to come to light regularly. After 2008, when Bernard Madoff’s $65 billion Ponzi scheme was exposed, the SEC made comprehensive reforms to better detect fraud within the 11,000 regulated investment advisers and 8,000 mutual funds that it oversees, according to the SEC’s description of those reforms (tinyurl.com/2fu6eog).
IRS Targets 1040 Schedules, Procedures in Preparer Compliance Visits
In its current round of office visits involving tax preparer compliance, the IRS is targeting practitioners who prepare a high percentage of returns with certain Form 1040 schedules and is checking preparers’ procedures and recordkeeping. For a second tax season, the IRS has sent reminders to tax preparers of their
IRS Launches Smartphone App
The IRS on Monday announced the launch of a new application for smartphones: IRS2Go. The application will let taxpayers check on the status of their refunds and get tax tips. In a press release, IRS Commissioner Doug Shulman described the application as showing the IRS’ “commitment to modernizing the agency
IRS Gives Relief to Return Preparers With Pending PTIN Applications
Because some return preparers are having trouble with the IRS’ new online preparer tax identification number (PTIN) application, the IRS on Jan. 24 announced that it is providing relief for preparers who make a good-faith effort to comply with the new PTIN requirement (Notice 2011-11). The IRS will permit preparers
IRS Announces Date to Start Processing Delayed Returns
The IRS announced that it plans to be able to start processing tax returns delayed by the late enactment of the 2010 Tax Relief Act on Feb. 14. On Dec. 23, the IRS warned that because of the late enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation
Lack of Economic Substance Guidance May Chill Legitimate Planning, Organizations Warn
The AICPA and the American Bar Association (ABA) Tax Section jointly issued a comprehensive set of recommendations to the IRS to encourage the Service to quickly establish guidance for applying the economic substance doctrine. In the absence of specific guidance, the organizations warn in a 65-page report released Jan. 18
AICPA Offers Congress 13 Suggested Cleanups for the Tax Code
Noncontroversial and straightforward tweaks to a tax code that contains more than 3.5 million words are not easy to find, but the AICPA has several such proposals that, if enacted, could eliminate a few headaches for taxpayers and CPAs alike. The AICPA’s second annual compendium of legislative proposals, distributed to
IRS Will Not Meet 80% E-File Goal, Oversight Board Says
The IRS Oversight Board released its Electronic Filing 2010 Annual Report to Congress on Wednesday, including the news that its goal that 80% of all major tax return types be electronically filed will likely not be met by 2012. The 80% e-file goal was originally implemented by the IRS Restructuring
2011 Tax Filing Season Gets Under Way With Many Changes
The IRS started accepting e-filed and Free File returns on Jan. 14, marking the official start of the 2011 tax filing season. However, many taxpayers will not be able to file until some time in February while the IRS updates forms and reprograms its systems to account for legislative changes
Social Security “Do-Over” Now Limited
The Social Security Administration issued a final rule that limits beneficiaries’ ability to stop their Social Security retirement payments, repay their cumulative past benefits, and start receiving higher payments available to older applicants. The SSA said the restrictions were necessary to prevent abuse of the option, which has been called
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Current developments in taxation of individuals: Part 1
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