The Court of Appeals for the Seventh Circuit rejected a taxpayer’s argument that margin loan financing of nonstatutory employee stock options rendered her exercise of the options not a taxable transfer within the meaning of IRC section 83. Under section 83, non-cash compensation, such as shares of stock, is taxable
Advertisement
TOPICS / TAX
IRS practice & procedure
“Unique” Trust Costs Exempted From Floor
The IRS and Treasury Department issued proposed regulation amendments intended to clarify how administrative expenses of estates and non-grantor trusts may be deducted. In general, such costs are considered miscellaneous itemized deductions subject to a minimum of 2% of adjusted gross income, similar to individual returns. IRC section 67(e)(1), however,
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
“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
D.C. Circuit Switches Position in Murphy
The Court of Appeals for the D.C. Circuit recently reissued its opinion in Murphy, Marrita v. IRS (see “ Tax Matters,” JofA, Feb. 07, page 70). The original opinion was released in August 2006, and vacated in December 2006, after the IRS requested a rehearing en banc. The request was
Forced Home Sale Can Result in Income to the Borrower
When the real estate market was booming, homeowners either borrowed heavily to buy in at the top or took out home-equity loans, which added to their debt. Now that the real estate market has cooled, some homeowners are waking up to an unpleasant reality: They can’t make
Blended Family an “Unforeseen Circumstance” for Home Sale
The IRS said a marriage that resulted in a large, combined new family was an “unforeseen circumstance” provided for in IRC § 121(c)(2)(B) that allowed a taxpayer to benefit from the capital gain exclusion on the sale of his principal residence. Letter Ruling 200725018 said the taxpayer could take advantage
AICPA Urges Congress to Reconsider Preparer Standards
When Congress passed the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007, it contained one major tax policy change not reflected in the title. The law, which was enacted May 25, included a provision that raises the standards applicable to tax return
Data Point: 13,000
Number of individual tax returns for 2006 that will be randomly selected for review in the IRS National Research Program reporting compliance study. Source: IRS, www.irs.gov .
Data Point: 12,748
The number of companies using the five-story Ugland House in George Town, Cayman Islands, as their address. The office building was mentioned in several Senate committee hearings regarding U.S. tax compliance implications and tax havens. Source: Senate Finance Committee, http://finance.senate.gov .
No “Alternatives” to Tax Lien Foreclosures
The IRS is not required to exhaust “alternative collection methods” before foreclosing tax liens, because IRC § 7403 contains no such requirement, a district court in Nebraska ruled. The court rejected the argument of taxpayer Jennifer Meisner to apply section 6331(j)(2)(D), which applies to levies, because levies and tax lien
Supreme Court to Hear Kentucky Muni Bond Case
The nation’s highest court agreed to hear a case that could decide whether the vast majority of states may continue giving discriminatory income-tax preference to in-state municipal bonds. In Davis v. Department of Revenue, 193 S.W.3d 557 (2006), the Kentucky Court of Appeals agreed with the taxpayers’ argument that Kentucky’s
Korb Reassures on FIN 48
The IRS recently released an internal memo written in March 2007 by Chief Counsel Donald Korb stating that documents prepared pursuant to FASB Interpretation no. 48, Accounting for Uncertainty in Income Taxes, are considered tax-accrual workpapers and thus are subject to the IRS’s “policy of restraint.” The IRS has a
Transitional Relief for Changes to Preparer Penalty
Transitional relief has been granted through the end of the year for changes to the tax return preparer penalty under IRC § 6694(a) that were enacted as part of the Small Business and Work Opportunity Tax Act of 2007. The changes originally were to take effect May 26. The act
Stakes Raised on Oversized Refund Claims
Taxpayers who receive “excessive” refunds can now be tagged with a 20% penalty on the overpayment. The provision is one of several revenue enhancers included in the recently passed Small Business and Work Opportunity Tax Act of 2007. The change to IRC § 6676(a) assesses the penalty on any claim
Securities Basis Reporting Aired
Requiring securities brokers to report basis on their customers’ transactions has received renewed attention in Congress as a way to help bridge the “tax gap.” Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking minority member Chuck Grassley, R-Iowa, presented draft legislation in late May. Bills also have been introduced
Is It Alimony?
In a ruling against the IRS, the Tax Court underscored that while alimony must be made under a divorce or separation instrument to be deductible, the payer doesn’t have to be legally obligated to make the payments. Under IRC § 71, cash payments made under a divorce or separation agreement
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
IRS Issues Guidance on Monetary Penalties
The IRS published guidance in Notice 2007-39 to outline how it will wield its new statutory authority to impose monetary penalties on taxpayer representatives for violations of Circular 230. The amendment to 31 USC §330 empowers the Service to levy monetary penalties for violations occurring after Oct. 22, 2004. The
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
Features
FROM THIS MONTH'S ISSUE
AI risks CPAs should know
Are you ready for the AI revolution in accounting? This JofA Technology Q&A article explores the top risks CPAs face—from hallucinations to deepfakes—and ways to mitigate them.
From The Tax Adviser
January 31, 2026
Trust distributions in kind and the Sec. 643(e)(3) election
January 31, 2026
Effects of the OBBBA on higher education
December 31, 2025
