The IRS has provided guidance on a variety of issues pertaining to health savings accounts (HSAs). The 42 questions and answers of Notice 2008- 59 address such issues as eligibility for individuals with “limited purpose” coverage by a health flexible spending account (FSA) or health reimbursement arrangement (HRA). The guidance
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TOPICS / TAX
IRS practice & procedure
All That Glitters Is Not Deductible
The Tenth Circuit Court of Appeals upheld a district court’s ruling that a company could not carry back a loss because the statute of limitations had passed. Taxpayers that incur net operating losses are permitted under IRC § 172 to carry them back two years and forward 20 years. A
Startup Expensing Election Now Deemed
Taxpayers may elect under IRC § 195 to deduct in the first year of operation up to $5,000 of startup expenses (reduced by the excess of total startup costs over $50,000) of an active trade or business and generally must amortize the remainder over 15 years. In July, the IRS
Court Hangs Up On Phone Tax Refund
The Court of Federal Claims held that the statute of limitations applies to taxpayers who paid the telephone excise tax through carriers and were not required to file returns related to it. Until May 2006, the IRS contended that telephone toll charges that varied only with elapsed time but not
Taxpayer Ignores CPA’s Advice At His Peril
An owner of a California health care company was found liable by the Tax Court for an accuracy-related penalty for a deduction he claimed in spite of his CPA’s advice against it. Larry Wadsworth was a general partner of Gold Coast Medical Services (GCMS), which provided medical products and services
GRAT Expectations
The Service adopted final regulations governing inclusion in estates of trust property of grantor retained trusts, charitable retained trusts and similar trusts. The final regs (TD 9414) are effective for estates of decedents dying after July 13, 2008, and modify and clarify a number of features of their proposed version
Criminal Enforcement Ramps Up
©2008 AICPA
Rules Clarified for Claiming the Exemption (and Related Tax Breaks) for Children of Divorced Parents
New final rules clarify who may claim qualifying children in the case of divorced or separated parents. Treasury Decision 9408, amending Treas. Reg. § 1.152-4, clarified the “counting nights” rule to identify a custodial parent. In promulgating the final regulations, the IRS took into consideration comments of the AICPA (Aug.
Equitable Owner Equals Deduction
The Tax Court held that a married couple could deduct mortgage interest and property tax payments made from a corporate checking account on a home that was owned by their son. The court held that the taxpayers were equitable and beneficial owners of the property and that the checking account
Nexus for Sales and Use Taxes
States have become more aggressive in claiming a seller has substantial nexus for sales and use tax purposes. They look for in-state activities, relationships and assets of unregistered businesses with customers in the state. Here are some tips to help businesses determine their sales and use tax collection obligations: Review
Knowing But Innocent
The Tax Court held that the IRS abused its discretion in denying a stay-at-home mom’s request for innocent spouse relief because it did not consider all of the relevant factors. Chrystina Nihiser filed for relief after her husband stopped paying their taxes due to financial problems with his business. Although
More Support for Check-the-Box
Following the U.S. Supreme Court’s refusal to hear an appeal attacking the validity of “check-the-box” provisions, a district court has similarly denied a legal challenge to the default business entity classification. The plaintiff in the more recent decision, L&L Holding Co. LLC v. U.S. (101 AFTR2d 2008-2081), contested an employment
Another SILO Pulled Down
A district court upheld the IRS’s denial of deductions by two large banks from a sale in, lease out (SILO) transaction, continuing a string of victories by the Service against the one-time promoted shelter. The opinion by the court for the Northern District of Ohio against KeyCorp and PNC Financial
Lack of Records Equals Recapture
The Tax Court held that a taxpayer had to recapture the majority of his prior-year section 179 deduction since he failed to show that the business use of his GMC Suburban remained above 50% in the following tax year. His testimony of the business use of the vehicle, although considered
When (and Where) Is It Filed?
The Fourth Circuit recently upheld a Tax Court decision that a deficiency notice beat the three-year statute of limitations only because the taxpayer had hand-delivered his returns to the wrong office. The IRS is generally required by IRC § 6501(a) to assess income tax deficiencies no later than three years
Common-Law Mailbox Rule Reopened
The Third Circuit Court of Appeals has reaffirmed as still valid the “common-law mailbox rule”—that a properly mailed document is presumed to reach the IRS within normal delivery time—despite holdings by other circuits that the rule was supplanted by the 1954 Tax Code provision that allows a postmark date to
The Scholarship Trap for Foreign Students
Many U.S. colleges and universities recruit foreign students, especially for graduate programs and athletics. Such students often receive full scholarships that include room and board, making them subject to U.S. income taxes. These students may be unfamiliar with the U.S. tax system, but they need to understand
Equal Treatment for All Taxpayers
The Tax Court reversed its prior decision in a “retail tax shelter” case, granting further relief from assessments to approximately 400 taxpayers. It did so because the IRS secretly—and fraudulently—entered into more favorable settlements with some test case litigants before the test cases were decided. The action marked a reversal
Line Items
COURTS ON BOARD WITH CSX CASE At least one other court has ruled that supplemental unemployment compensation benefits (SUCBS or SUBs) paid by employers to laid-off employees are subject to FICA taxes, after the Federal Circuit so ruled in the long-running case CSX Corp. v. U.S., 101 AFTR2d 2008-1120 (see
Debt Forgiveness Taxed
Two exceptions to the general provision of IRC § 61(a)(12) recognizing income from the discharge of indebtedness were tested recently in separate cases, but the taxpayers were not successful in either. Argued before the U.S. Bankruptcy Court for the Eastern District of Tennessee, Higgins v. Commissioner involved discharge of indebtedness
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SPONSORED REPORT
Preparing clients for new provisions next tax season
As the 2025 filing season approaches, H.R. 1 introduces significant tax reforms that CPAs must be prepared to navigate. These legislative changes represent some of the most comprehensive tax updates in recent years, affecting both individual and corporate taxpayers. This report provides in-depth analysis and guidance on H.R. 1.
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