In a report released on Thursday, the Treasury Inspector General for Tax Administration (TIGTA) suggested that the IRS had missed 1.5 million tax returns with potentially identity-theft-related fraudulent tax refunds in excess of $5.2 billion for the 2011 filing season (TIGTA Rep’t No. 2012-42-080). The IRS itself reported that it
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First Circuit strikes down Defense of Marriage Act but stays tax remedies
The First Circuit Court of Appeals on May 31 declared part of the federal Defense of Marriage Act unconstitutional, upholding a Massachusetts federal district court decision. The appeals court held that the act’s denial of federal benefits to lawfully married same-sex couples violates the Equal Protection Clause of the U.S.
Avoiding missteps in the LIFO conformity rule
During inflationary times, companies can reduce their taxable income by using the last-in, first-out (LIFO) cost flow assumption for inventories. However, the tax savings from using LIFO come at a cost. Under the LIFO conformity rule in Sec. 472(c), if LIFO is used on a taxpayer’s tax return, no other
Supreme Court upholds health care law
In a much-anticipated decision, the U.S. Supreme Court declared the mandate in IRC Sec. 5000A, requiring U.S. citizens and legal residents to maintain minimum essential health coverage, to be a permissible exercise of Congress’s taxing powers under the Constitution (National Federation of Independent Business v. Sebelius, Sup. Ct. Dkt. No.
Installment interest from settlement with state is tax-exempt
The Third Circuit Court of Appeals, reversing the Tax Court, held that a state that paid taxpayers installment interest on amounts owed pursuant to an eminent domain settlement did so under its borrowing authority, and the interest therefore was tax-exempt. According to the court, the interest was paid due to
Taxpayers residing outside U.S. questioned at U.S. border regarding back taxes
Taxpayers traveling to the United States with unpaid U.S. tax assessments can be detained at the border, questioned, and flagged for follow-up enforcement. If a taxpayer has an unpaid tax liability and is subject to a resulting Notice of Federal Tax Lien, the IRS may submit identifying taxpayer information to
TIGTA, Congress target identity theft
On May 8, the House Ways and Means Oversight and Social Security Subcommittees held a hearing on tax fraud involving identity theft. The same day, the Treasury Inspector General for Tax Administration (TIGTA) released a report saying the IRS does not handle identity theft issues well (TIGTA Rep’t No. 2012-40-050).
Accounting firm’s payments to owners flunk independent-investor test
The Seventh Circuit held that an accounting and consulting firm organized as a C corporation could not deduct payments to related entities because they were dividends, not compensation for services rendered by the company’s owners. The firm was founded in 1979 by three accountants. During the tax years at issue—2001,
Charitable deduction erased by statement’s omission
The Tax Court upheld a disallowance of more than $22,000 of a couple’s charitable contribution deduction solely for the lack of a contemporaneous statement from their church, the donee, that the couple received no goods or services in return. The taxpayers, David and Veronda Durden, made the contributions by check,
Tax compliance for acquisitions: Prepare before purchasing
Fears of a “double-dip” recession in 2012 may have subsided, but the overall economic forecast remains uncertain. Therefore, companies are looking beyond organic, internal growth to external growth sources to bolster company performance. A recent study by The Boston Consulting Group (BCG) touted the power of acquisitions for growth during
Are frequent flyer miles taxable?
Earlier this year, Citibank surprised many of its customers by issuing Forms 1099-MISC, Miscellaneous Income, to report the value of frequent flyer miles the customers had received in exchange for opening new accounts as part of an ongoing promotion. Understandably, the customers were upset because, the value of the miles
Regulations finalize rules on entertainment use of business aircraft
On Tuesday, the IRS issued final regulations relating to the disallowance under Sec. 274 of deductions for the use of business aircraft for entertainment (T.D. 9597). The final regulations adopt, with some modifications, proposed regulations issued in 2007 (REG-147171-05), which in turn followed principles first expressed in Notice 2005-45. In
Prop. regs. would clarify who is subject to Sec. 274(n) limit on meal expenses
The IRS released proposed regulations under Sec. 274 clarifying which party is subject to the rule under Sec. 274(n)(1)(A) that limits the deduction for meals to 50% of the expenses incurred (REG-101812-07). As the IRS emphasized, only one party is intended to be subject to the limitation, and there has
False internet rumors about “real estate transaction tax” worry taxpayers
The National Association of Realtors has some tax advice for users of the internet: Don’t believe everything you read. There has been a recent flare-up of chain emails purporting that, come Jan. 1, all real estate transactions will be subject to a 3.8% federal sales tax. The problem: That’s not
Treasury releases model intergovernmental agreement for FATCA
The Treasury Department on Thursday released a model intergovernmental agreement designed to implement the information-reporting and withholding-tax provisions in the Foreign Account Tax Compliance Act (FATCA), which was enacted by Congress in 2010 to require foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by
Taxpayers who did not establish insolvency must recognize COD income
Taxpayers who settled a credit card debt for $4,412 less than they owed in 2008 had to include that amount in income because they did not prove they were insolvent under Sec. 108(a)(1)(B) at the time of the debt discharge (Shepherd, T.C. Memo. 2012-212). Sec. 108(a)(1)(B) excludes cancellation of debt
Tax Court upholds regulation requiring dependents be citizens in year tax benefits are claimed
On Thursday, the Tax Court upheld Regs. Sec. 1.152(a)(1), which requires that children be U.S. citizens at some time during the calendar year for which the children are claimed as dependents, as a valid interpretation of Sec. 152(b)(3)(A) (Carlebach, 139 T.C. No. 1 (2012)). The taxpayers and their six children
American Institute of CPAs recommends changes to tangible property guidance
On July 16, 2012, the AICPA submitted a comment letter to the IRS recommending various changes and simplifications to the voluminous and complex regulations regarding the treatment of expenditures incurred in selling, acquiring, producing, or improving tangible assets (T.D. 9564 and REG-168745-03) and the revenue procedures governing the accounting method
Self-employed can deduct Medicare premiums, IRS Chief Counsel advises
Explaining a recent reversal of a long-held IRS stance, the Office of Chief Counsel advised IRS attorneys on Friday that self-employed individuals may deduct Medicare premiums from their self-employment income. Chief Counsel Advice (CCA) 201228037 clarifies an IRS position that previously has appeared only in instructions to Form 1040, U.S.
New rules aim to shut down certain outbound asset reorganizations
In Notice 2012-39, the IRS issued rules to govern certain outbound asset reorganizations involving the transfer of intangibles under Sec. 367(d) occurring on or after July 13, 2012, and that will apply instead of existing regulations (Temp. Regs. Secs. 1.367(d)-1T(c), (d), (e), and (g)). The IRS intends to issue regulations
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FROM THIS MONTH'S ISSUE
Flip out with the latest Tech Q&A
The September Technology Q&A column shows how to create dynamic to-do lists with Excel's checkboxes and also how to set up multifactor authentication texts that don't rely on phones. Flip through both items and view a video walkthrough in our digital format.
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