Source: www.irs.gov .
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TOPICS / TAX
Individual income taxation
Return Preparers Subject to New Regulations
Section 7216 of the Internal Revenue Code imposes criminal penalties on tax return preparers who knowingly or recklessly make unauthorized disclosures or uses of information furnished to them in connection with the preparation of an income tax return. Newly finalized regulations should prompt all return preparers to evaluate their processes
Environmental Cleanup, Price-Fixing Settlement Not Claims of Right
Two recent appellate cases further circumscribed the ability of taxpayers to claim a section 1341 deduction for income subject to a “claim of right.” Section 1341 allows a deduction when a taxpayer had an apparent right to an amount over $3,000 included in gross income in a prior year but
A Hard Night at the Casino
In a summary opinion, the Tax Court ruled that a woman who operated a trucking business by day and played casino slot machines by night was a professional gambler, allowing her to deduct $1.4 million in gambling losses as a business expense rather than as a miscellaneous itemized deduction. A
Identifying “Specified Employees”
The nonqualified deferred compensation (NQDC) rules may surprise employees who expect to receive distributions from their NQDC plans immediately after they terminate employment. Code § 409A contains strict rules NQDC plans must follow to avoid harsh consequences to the employee (that is, immediate taxation, 20% penalty, and
Do-It-Yourself Will Succeeds in Spite of Itself
The Ninth Circuit Court of Appeals recently upheld a district court’s decision that a self-prepared will’s bequest qualified for the marital deduction, even though its literal wording created a disqualifying terminable interest. The courts found the decedent’s handwritten notes of planned revisions to the will and an article he saved
Reporting Your Other Income
The IRS updated its “Tax Gap” series with a new fact sheet, Reporting Miscellaneous Income, which includes guidelines for reporting self-employment income, barter exchanges of goods and services, gambling winnings, prizes and awards. The series, located at www.irs.gov/newsroom/article/0,,id=158619,00.html, also includes fact sheets on reporting auction income and capital gains, tax
Stranger in a Strange Plan
Media reports highlighting the hazards of so-called stranger-originated (also known as stranger-owned) life insurance (STOLI) prompted U.S. House tax writers to ask Treasury Secretary Henry Paulson to investigate the practice as well as consider issuing guidance on its tax implications and help Congress notify “elderly taxpayers of the adverse tax
Pension Is Alimony
The Tax Court recently ruled that a taxpayer’s payments to an ex-spouse under the Uniform Services Former Spouse Protection Act (USFSPA) representing her share of his military retirement pay were deductible alimony payments. The court determined the payments satisfied the requirements of IRC § 71 even though they were listed
Pension Is Not Alimony
In a split decision, the Ninth Circuit Court of Appeals reversed the Tax Court to hold that a taxpayer could not deduct as alimony the half-interest in his vested pension benefits he paid his ex-wife under a California divorce decree. The decision may carry implications for how divorcing couples divide
Ohio Court Turns the Tables on Annuities
What is the estate tax value of future state lottery payments? One might think it would be the present value the state used in calculating a lump sum payout. The IRS, however, relying upon the actuarial tables prescribed by IRC § 7520, came up with a higher number in an
Tax Court to Rule on Sex Change
The U.S. Tax Court in Boston is reviewing whether expenses of a sex-change operation are deductible. Rhiannon G. O’Donnabhain, born anatomically male, was diagnosed by her psychotherapist in 1996 with gender identification disorder (GID), which she says caused her extreme discomfort since childhood. In 1997, O’Donnabhain began taking feminizing hormones
Travel Deduction Gets Bumped
The Tax Court recently held that an airline mechanic could not deduct travel expenses while working in a city to which he was transferred by his employer, even though he hoped to return to his city of residence. The court concluded the mechanic was not “away from home” as required
Overlooked Medical Deductions Abound
While it is common knowledge that taxpayers may deduct qualified medical expenses for themselves and their dependent children, other opportunities to deduct medical expenses are not so widely known. One is the deduction of medical expenses that a taxpayer pays on behalf of others, such as elderly
“Reasonable Certainty” for a Theft Loss Deduction
The Internal Revenue Code often requires the calculation of amounts that are less than absolute but more than mere guesses. IRC § 165 allows taxpayers to deduct theft and other casualty losses but requires them to take reasonable action to recover those losses. If a claim for
The Word on IRD
Probably for the same reason people tend to put off making their wills, taxpayers often neglect to plan for the effects on their heirs of income they were entitled to receive but didn’t live long enough to see. So-called “income in respect to a decedent” (IRD) includes,
Pot Parsed From Deductible Expenses
As a general rule, it is illegal to traffic in marijuana, although California and some other states have legalized the use of marijuana for medical treatment. A California nonprofit benefit corporation that supplied medical marijuana to its members recently failed in its bid to deduct marijuana-related expenses but won a
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