Section 7216 of the Internal Revenue Code imposes criminal penalties on tax return preparers who knowingly or recklessly make unauthorized disclosures or uses of information furnished to them in connection with the preparation of an income tax return. Newly finalized regulations should prompt all return preparers to evaluate their processes
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Tax
2007 in Review: Congressional Impact on CPA Profession
Last year, CPAs had plenty of reasons to pay attention to policymakers’ proposals. Legislation under consideration has the potential to improve tax practices, alter audit practices, and even pave the way for greater competition. AICPA VP Testifies Before Senate Panel on International Accounting Standards Last fall, the Senate Banking
Economic Substance Prevails Against Another Son of BOSS
The IRS scored a major success in its war against Son of BOSS-type tax shelters in Jade Trading LLC . The Court of Federal Claims used the application of the economic substance doctrine in Coltec Industries to disallow losses involving partnerships and euro call options. In 1999, after clearing approximately
New Form 990 Phased in for Smaller EOs
Smaller exempt organizations received transition relief as the IRS released its revamped Form 990, Return of Organization Exempt From Income Tax, for tax years 2008 and following. Organizations with gross receipts under $1 million or total assets under $2.5 million will be allowed to use Form 990-EZ for tax year
Supreme Court Upholds Trust Expense Floor
The Supreme Court ruled in a unanimous opinion that administrative expenses of nongrantor trusts or estates generally are subject to the 2% of adjusted gross income floor as miscellaneous itemized expenses, resolving a split among circuit courts on the issue. The case, Knight v. Commissioner (101 AFTR2d 2008-380), was styled
Pitt Falls in FICA Case
The Third Circuit Court of Appeals recently held that payments to tenured faculty and administrators at the University of Pittsburgh who relinquished tenure rights under an early-retirement plan were subject to FICA taxes. The ruling was contrary to an Eighth Circuit case with similar facts ( North Dakota State University
A 401(k) Tax Break That’s Often No Break
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
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
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