Privately held business entities organized as flow-through entities face unique state tax issues under FASB Accounting Standards Codification (ASC) Topic 740 relating to the accounting for uncertainty in income taxes. For federal purposes, only a small percentage of flow-through entities pay income taxes, and if the scope of ASC 740
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Tax
Strategies for Compromising Tax Debts
Representing financially distressed individuals is becoming increasingly common with the economic difficulties many individuals and businesses have experienced in recent years. While tax practitioners know that a taxpayer can make an offer in compromise, some of the options available in making an offer are not well-known. This article addresses three
1099 Provisions Repealed
Congress repealed a widely criticized expansion of Form 1099 information reporting that would have applied to most payments by businesses and a similar requirement for recipients of real estate rental income. The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4) passed the Senate
IRS Wins Historic Credit Fund Appeal
The Fourth Circuit Court of Appeals ruled against the taxpayers in Virginia Historic Tax Credit Fund 2001 LLP v. Commissioner (docket no. 10-1333), reversing the Tax Court. As noted in Tax Matters coverage (April 2011, page 52) of the Tax Court’s holding in Historic Boardwalk Hall LLC v. Commissioner, 136
Palimony Claim Is a Valid Estate Tax Deduction
The U.S. Court of Appeals for the Ninth Circuit reversed the U.S. District Court for the District of Nevada, saying a palimony claim could be a valid deduction from a taxable estate and that the district court had misconstrued Nevada law regarding contracts between cohabitating individuals. Bernard Shapiro and Cora
IRS Gives Relief for Late Elections to Combine Real Estate Activities
The IRS established a special procedure by which taxpayers can make a late election to treat all their real estate activities as a single activity for purposes of meeting material participation rules. The guidance, in Revenue Procedure 2011-34, allows eligible taxpayers to avoid applying for a private letter ruling to
Treasury Releases Plan to Review All Regulations
The Treasury Department on Thursday released a plan to review all existing Treasury regulations and identify those that are “obsolete, unnecessary, excessively burdensome, or ineffective.” The plan is part of a larger federal government regulatory review mandated by an executive order issued by President Barack Obama in January. Under the
AICPA Speaks Out Against Proposed Model Sales and Use Tax Statute
The AICPA testified at a hearing May 18 to voice its opposition to a model statute drafted by the Multistate Tax Commission (MTC) that would authorize states to require nonresident companies to report sales transactions with in-state consumers in an effort to increase use tax compliance. The MTC is an
New “Killer B” Regulations Issued
The IRS has issued new final regulations on cross-border reverse triangular reorganizations, popularly known as “Killer B” transactions (TD 9526). The regulations finalize with some modifications proposed regulations that were issued in 2008 (REG-136020-07). Killer B transactions are designed to allow corporations to repatriate foreign subsidiary earnings tax-free, in violation
Tax Court Gives Some Petitioners Extra Time to File Motions to Vacate
During the transition to its new eAccess electronic document management system, the Tax Court failed to serve a small number of petitioners with paper or electronic notices of the documents concluding their cases (such as final decisions or orders of dismissal). The Tax Court has notified petitioners in those cases,
Oversight Board Identifies IRS Problems
The IRS Oversight Board released its annual report to Congress on Thursday, describing the IRS’ performance during fiscal 2010 and its progress in meeting the goals in its strategic plan. The board describes the challenges the IRS has faced in recent years in administering new tax laws enacted to provide
Government Contractor Withholding Delayed to 2013
The IRS issued final regulations (TD 9524) further postponing implementation of mandatory 3% withholding on payments from government entities to contractors and providing interim guidance. The final regulations also adopt a $10,000 withholding threshold for any single payment and provide a transition rule under which interest and penalties will not
Tax Court Rejects Taxpayer’s Argument That Denial of Accounting Method Change Was Arbitrary
The Tax Court held that the IRS’ rejection of a taxpayer’s accounting method change request was not the result of an “automatic rejection policy” and that the IRS acted within its proper discretion in denying the request (Lattice Semiconductor Corp. v. Commissioner, TC Memo 2011-100). The taxpayer produced electronic components
IRS Responds to AICPA Accounting Software Examination Letter
In a March 29 letter from Patricia Thompson, chair of the AICPA’s Tax Executive Committee, to Chris Wagner, commissioner of the IRS’ Small Business/Self-Employed Division, the AICPA communicated its concerns regarding the Service’s program to request the accounting software files of certain small business taxpayers under examination; the letter cites
IRS Expands Rules on Deductible Home-Equity Debt
In Revenue Ruling 2010-25, the IRS ruled that a taxpayer can deduct as qualified residence interest up to $1.1 million of the debt securing the purchase of a taxpayer’s principal residence. While personal interest is nondeductible, qualified residence interest, which includes both interest on acquisition indebtedness and home-equity indebtedness, is
In-Plan Roth Conversions: Planning and Administrative Considerations
Before enactment of the Small Business Jobs Act of 2010 (SBJA), amounts held in section 401(k), 403(b) and 457(b) plans could be converted to a Roth-type retirement plan only by taking a distribution and rolling it into a Roth IRA. This put plan sponsors in a difficult position, because in-service
FinCEN Amends BSA Regs on FBAR Filings
The Financial Crimes Enforcement Network (FinCEN) issued a final rule (tinyurl.com/4tevafd) that amends the regulations under the Bank Secrecy Act (BSA) regarding Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), to clarify when an account is foreign and therefore reportable as a foreign financial account and
Wagering Losses Not Deductible, Gambling Business Expenses Deductible
The Tax Court held that a taxpayer engaged in the trade or business of gambling could not deduct wagering losses in excess of his wagering gains but could deduct ordinary, nonwagering business expenses incurred while pursuing his gambling business. Section 165(d) limits losses from wagering transactions to the amount of
“Too Good to Be True” Arrangement Lacks Business Purpose
The Tax Court disregarded for tax purposes a multilevel-entity structure for a taxpayer’s psychiatry practice, holding the taxpayer liable for unpaid self-employment taxes on the practice’s net income. Tony Robucci had conducted his practice in Colorado as a sole proprietorship until 2001, when, at his request to minimize his
Carrot and Stick Reprised for Foreign Accounts
The IRS on Feb. 8 opened a second reduced-penalty voluntary compliance initiative for taxpayers’ undisclosed offshore assets. The program is designed to bring money held in foreign accounts back into the U.S. tax system and to help taxpayers with income from offshore accounts to comply with federal tax law. Under
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