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
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TOPICS / TAX
IRS practice & procedure
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
Taxpayer Suffers One-Two Punch on Stock’s Decline
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
“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
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FROM THIS MONTH'S ISSUE
4 ways solo practitioners can stand out
Five years ago, a grieving Angel Zhen started his own CPA firm with no clients and no revenue. Today, he has 300 clients, $600,000 in revenue and 12 weeks of annual vacation. In this JofA article, he shares how he set up his firm and how you could do the same.
From The Tax Adviser
April 30, 2026
Current developments in taxation of individuals: Part 2
April 30, 2026
