Withdrawing company stock from a 401(k) to take advantage of a tax break called net unrealized appreciation (NUA) sounds like a no-lose proposition, and most advisers tell their eligible clients to go for it. But there’s just one big problem: When you run the numbers, this maneuver
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Tax
100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States
Michael Graetz, a Yale Law School professor, has written many books and studies related to major tax reform. His previous books on income tax reform may be familiar to readers— The Decline (and Fall) of the Income Tax (1997) and the 1999 paperback version The U.S. Income Tax: What It
Partnership Incorporation Provides Planning Opportunities
It is common for business owners to conclude that they must change the legal form of the entity through which a business has been conducted. When incorporating a business that has been a partnership, CPAs should pay close attention to the form of the conversion because the method used can
Dunn Does It Again
The Eleventh Circuit Court of Appeals vacated a Tax Court judgment and allowed a valuation discount of 100% of an estate’s built-in capital gains tax. The court based the contingent tax liability and resulting discount on an assumed immediate liquidation of the decedent’s interest in a closely held investment holding
New and Increased Filing Penalties for Businesses
Among the revenue offsetting provisions of HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, were increases in penalties on partnerships and S corporations for failure to timely file returns. The monthly penalty for failure to file required partnership returns on time (absent any extension) was increased from $50
Environmental Cleanup, Price-Fixing Settlement Not Claims of Right
Two recent appellate cases further circumscribed the ability of taxpayers to claim a section 1341 deduction for income subject to a “claim of right.” Section 1341 allows a deduction when a taxpayer had an apparent right to an amount over $3,000 included in gross income in a prior year but
Voluntary Disclosure to the IRS: A Viable Option
EXECUTIVE SUMMARY Under its policy of voluntary disclosure, the IRS can forbear from referring for criminal prosecution taxpayers who come forward to admit previously unreported tax liabilities. CPAs may be in a position to learn of clients’ intentions to make such disclosures. Where disclosures could otherwise
Return Preparer Penalties Guidance Issued
The IRS said it will revise regulations before the end of 2008 to incorporate provisions of the Small Business and Work Opportunity Tax Act of 2007 concerning preparer penalties under section 6694 and related sections. In the meantime, interim guidance issued in the final hours of 2007 offered some clarification
A Hard Night at the Casino
In a summary opinion, the Tax Court ruled that a woman who operated a trucking business by day and played casino slot machines by night was a professional gambler, allowing her to deduct $1.4 million in gambling losses as a business expense rather than as a miscellaneous itemized deduction. A
Whistleblowers Take Their Cue
In the first year it was established, along with enhanced rewards for tips on large tax underpayments, the IRS Whistleblower Office received about 80 claims, the IRS said in a news release. About half the claims came in the last two-and-a-half months of 2007. They include a claim of $2
Reorganization Rules Proposed
The IRS issued proposed regulations to simplify and clarify rules governing accounting methods to be used after corporate reorganizations and tax-free liquidations under IRC section 381(a). The proposed amendments to Treas. Reg. §§ 1.381(c)(4)-1 and 1.381(c)(5)-1 are intended to provide greater consistency between the corresponding Code paragraphs. They provide that
Till Death or § 6015(E)(4) Do Us Part
The Tax Court recently decided an issue of first impression concerning innocent spouse relief, describing it as “a small but noticeable gap in the tax law”: Does the right of a nonelecting spouse to intervene in an innocent spouse case continue after the nonelecting spouse’s death? The court answered in
Highlights
FASB issued Statement no. 141(R), Business Combinations , and Statement no. 160, Noncontrolling Interests in Consolidated Financial Statements . Effective for fiscal years beginning after Dec. 15, 2008, the standards are intended to improve, simplify and internationally converge accounting for business combinations and the reporting of noncontrolling interests
Son of BOSS Adjustment Timely for IRS
A federal court has concluded that a suspected “Son of BOSS” transaction that caused an overstatement of basis in the calculation of gain from a sale of real estate is a gross income omission that allows the IRS six years to assess a deficiency. The ruling, in Salman Ranch Ltd.
Identifying “Specified Employees”
The nonqualified deferred compensation (NQDC) rules may surprise employees who expect to receive distributions from their NQDC plans immediately after they terminate employment. Code § 409A contains strict rules NQDC plans must follow to avoid harsh consequences to the employee (that is, immediate taxation, 20% penalty, and
IRS Reminds EOs of Political Restrictions
Churches and other exempt organizations (EOs) must abide by laws prohibiting them from direct or indirect involvement in political candidates’ campaigns, the IRS reminded in a news release. Revenue Ruling 2007-41, issued last summer, provides scenarios of how the ban may be observed. Generally, tax-exempt organizations are forbidden to promote
Partnerships for Community Development
EXECUTIVE SUMMARY CPAs can use their expertise to structure partnerships between long-term community investors and developers who want to contribute to improving markets without displacing current residents and local businesses. For tax purposes, forming an LLC may be the best approach to a development partnership. The partners
Passive or Nonpassive Activity—IRS Wins Either Way
The Tax Court recently ruled on the same day in favor of the IRS in two unrelated cases involving the passive loss rules for rental activities (see also “ Real Tax Savings in Real Estate,” page 68). In one case, the court determined that a taxpayer’s rental activity was passive,
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