The Tax Court recently decided an issue of first impression concerning innocent spouse relief, describing it as “a small but noticeable gap in the tax law”: Does the right of a nonelecting spouse to intervene in an innocent spouse case continue after the nonelecting spouse’s death? The court answered in
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TOPICS / TAX
IRS practice & procedure
Son of BOSS Adjustment Timely for IRS
A federal court has concluded that a suspected “Son of BOSS” transaction that caused an overstatement of basis in the calculation of gain from a sale of real estate is a gross income omission that allows the IRS six years to assess a deficiency. The ruling, in Salman Ranch Ltd.
IRS Reminds EOs of Political Restrictions
Churches and other exempt organizations (EOs) must abide by laws prohibiting them from direct or indirect involvement in political candidates’ campaigns, the IRS reminded in a news release. Revenue Ruling 2007-41, issued last summer, provides scenarios of how the ban may be observed. Generally, tax-exempt organizations are forbidden to promote
Passive or Nonpassive Activity—IRS Wins Either Way
The Tax Court recently ruled on the same day in favor of the IRS in two unrelated cases involving the passive loss rules for rental activities (see also “ Real Tax Savings in Real Estate,” page 68). In one case, the court determined that a taxpayer’s rental activity was passive,
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
Deciphering the Code
A recent case that ostensibly dealt with a bank’s deductions for interest and other expenses associated with tax-exempt income could affect how advisers approach interpretation of the Code and revenue rulings generally. PSB Holdings is the parent of an affiliated group that includes Peoples State Bank, which is based in
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
Correcting § 409A(a) Failures
The IRS has issued transition relief and guidance for correcting operational failures under nonqualified deferred compensation plans. Following the methods outlined in the guidance will avoid income inclusion under § 409A(a). The second section of the guidance explains how to obtain relief for unintentional operational failures corrected in the same
The Intersection of FIN 48 and Tax Opinions
FASB’s Interpretation no. 48, Accounting for Uncertainty in Income Taxes, has changed how enterprises recognize and measure tax benefits associated with tax positions and disclose in their financial statements uncertainties related to income tax positions. Most enterprises have found they must take a variety of steps to
FICA for Medical Residents Splits Circuits
Medical residents in a teaching hospital might be eligible for a student exemption from FICA taxes, a circuit court ruled recently, adding to a split among circuits on the issue. The Eleventh Circuit vacated and remanded the decision of a Florida district court in United States v. Mount Sinai Medical
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
Abusive Insurance Plans Get Red Flag
The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in whole or in part, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice
IRS Simplifies Late Filing Relief
In Rev. Proc. 2007-62 (released Oct. 9, 2007), the IRS has provided a new simplified method for taxpayers to request relief for late S corporation elections. A small business corporation may make an election to be an S corporation at any time during the preceding tax year or at any
A Point of No Return
Is filing of a return required for a conviction of false return preparation? A recent case held it was not. Linda Borden of Florida was convicted by a federal jury in March 2007 of 27 counts of preparing or presenting false or fraudulent returns under IRC section 7206(2). However, she
A Moot Point (and a Half) for Exxon
When it comes to overpayment interest due them, most taxpayers probably wouldn’t quibble too much over a difference of 1.5 percentage points, especially if that margin applied only to compounding of previously earned interest. But Exxon Mobil isn’t most taxpayers. For it, that fraction was worth $140 million, for which
Highlights
The Center for Audit Quality issued a set of white papers to address issues practitioners may encounter as a result of the “liquidity crisis” spurred by deterioration in the markets for subprime mortgages and related securities. The CAQ Professional Practice Executive Committee said firms would benefit from the
Five-Card Withhold ’Em
On the heels of a Tax Court decision that held a poker tournament to be a wagering activity subject to IRC § 165 gambling loss limitations (Tschetschot v. Commissioner, TC Memo 2007-38, appeal pending in Eighth Circuit, filed 9/7/07, docket no. 9498-03), the IRS has issued a revenue procedure specifying
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
Son of BOSS Goes Into Overtime
As a general rule, the statute of limitations on income tax returns is three years, extended to six years under section 6501 for a substantial omission of gross income. Courts in recent tax shelter litigation involving overstatement of basis have declined to apply the longer period. However, a recent district
Car 54, Where Are You?
Police officers and firefighters who are permitted to drive their official vehicles home are exempt from the arrangement’s being considered a fringe benefit includable in income or subject to substantiation requirements of IRC § 274(d)(4), since the vehicles are considered unlikely to be used for personal purposes more than a
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