The Federal Circuit Court of Appeals joined the Seventh Circuit in holding that an overstatement of basis can be construed as an omission from gross income for purposes of the extended six-year limitation period for assessment of tax, while the Fourth and Fifth circuits reached the opposite conclusion, ruling in
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Tax
Scholarships and Support
Tax preparers may have problems determining the dependency status of a student who lives with, but is not the child of, a taxpayer, especially when the student has proceeds from a scholarship or tax-deferred education account or loan. While this is not a common situation, such a scenario may require
IRS Allows Deduction for Payments for Preferred Stock Used to Settle Bank’s Lawsuits
In a private letter ruling released on Friday, the IRS’ Office of Chief Counsel allowed a private bank catering to high-wealth individuals to deduct as ordinary and necessary trade or business expenses the payments it made to settle lawsuits arising from criminally fraudulent activities by one of the bank’s fund
AICPA Recommends Ways IRS Could Reduce Schedule M-3 Burdens
In a letter to Heather Maloy, commissioner of the IRS’ Large Business and International Division, Patricia Thompson, chair of the AICPA’s Tax Executive Committee, encouraged the IRS to collaborate with external stakeholders in revising Schedule M-3, Net Income (Loss) Reconciliation, and suggested some revisions to reduce taxpayers’ compliance burdens. The
IRS Issues Proposed Regulations on Controlled Group Deferred Losses
On Wednesday, the IRS issued proposed regulations on the time for taking into account deferred losses on the sale or exchange of property between members of a controlled group (REG-118761-09). Generally, for any loss on the sale or exchange of property between certain related persons, no deduction is allowed, except
IRS Extends, Modifies Program Allowing Truncated Social Security Numbers on Information Returns
The IRS announced that it is extending and modifying a pilot program designed to deter identity theft (Notice 2011-38). Under the program, which was introduced in 2009, filers of certain paper information returns are allowed to truncate the payee’s Social Security number on the payee statement. The notice extends the
AICPA’s Call for AMT Repeal, Simplification Strikes Chord With Lawmakers
Annette Nellen, chair of the AICPA Individual Income Taxation Technical Resource Panel, pleased some members of Congress when she repeated the AICPA’s support for repeal of the alternative minimum tax (AMT) in testimony before the House Ways and Means Committee on April 13. “That’s music to my ears,” veteran congressman
President Signs Repeal of Expanded 1099 Requirements
On Thursday, President Barack Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4; 1099 Act), which repeals both the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation and also the 1099 reporting requirements imposed
IRS Extends Guidance on Trustee Fees
The IRS announced that it is extending interim guidance on the treatment of investment advisory fees and other costs subject to the 2% floor under IRC § 67(a) (Notice 2011-37). Under the notice, nongrantor trusts and estates will not be required to unbundle their fiduciary fees to determine what portion
Discharge of Indebtedness Rules Clarified for Grantor Trusts and Disregarded Entities
On Tuesday, the IRS issued proposed regulations (REG-154159-09) that provide rules regarding who is the “taxpayer” for purposes of applying the IRC § 108 discharge of indebtedness rules to a grantor trust or disregarded entity. IRC §§ 108(a)(1)(A) and (B) exclude discharged debt from a taxpayer’s income if the discharge
IRS Issues Foreign Financial Account Reporting Guidance
The IRS issued a second notice giving guidance on various reporting requirements under the Foreign Account Tax Compliance Act (FATCA, part of PL 111-147) (Notice 2011-34). The notice responds to concerns raised by commenters following the issuance last August of Notice 2010-60, which contained preliminary guidance on implementation of the
Federal Budget Deal Avoids Tax Season Disruptions
White House and congressional negotiators reached an agreement on funding the federal government ahead of a midnight Friday deadline and averted a shutdown of all nonessential government functions. Under the agreement, the federal government will be funded by a continuing resolution through next Friday. By Friday, Congress plans to pass
IRS Prepared to Process Returns If Government Shuts Down
IRS Commissioner Doug Shulman addressed the National Press Club on Wednesday, and after his prepared remarks he answered questions regarding the IRS’ preparations for a possible shutdown of the federal government, which could happen Friday. The first question asked what people can expect if the government shuts down. Shulman said
Senate Approves 1099 Repeal, Sends Bill to President
The Senate on Tuesday passed legislation to repeal both the expanded Form 1099 information-reporting requirements mandated by last year’s health care legislation and also new 1099 reporting requirements imposed on taxpayers who receive rental income. The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR
Final Regulations Issued on Validity, Priority of Federal Tax Liens
On Monday, the IRS published final regulations (TD 9520) that govern the validity and priority of federal tax liens under IRC § 6323. Under IRC § 6321, the federal government has an automatic lien against any person who does not pay federal tax for which they are liable after the
IRS Delays Due Date for Choosing Basis Allocation for Decedents Dying in 2010
The IRS announced that it is delaying the due date for Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, past its original April 18 due date, but did not announce what the new due date will be (IR-2011-33). Therefore, for decedents who died in 2010,
Mining Tax Clients for New Business Opportunities
Any CPA who does personal income tax returns can relate to the frustration of waiting for clients to open envelopes and organize data during the tax return informational interview. Don’t let this time go to waste. For many firms, the largest volume of clients is in tax return services. Using
Second Home Eligible for Parsonage Exclusion
The Tax Court held that a parsonage allowance paid to an ordained minister used to pay the housing expenses of a second home could be excluded from income, saying the phrase “a home” used in IRC § 107 should be interpreted as any home, not just one. Section 107 allows
Supreme Court: Medical Residents Not Exempt From FICA
Resolving a circuit split and applying the Chevron standard of greater deference to Treasury regulations, the U.S. Supreme Court upheld the validity of Treasury regulations requiring full-time medical residents and their university employers to pay FICA tax. In doing so, the court announced that tax regulations should generally be accorded
IRA Charitable Distributions No Panacea
The extension for 2010 and 2011 of IRA qualified charitable distributions may encourage your clients to include them in their financial planning. Yet while it is true that completing a direct contribution from an IRA is pre-tax, this is hardly unique to contributing from an IRA, and in reality other
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