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Tax

Top Things to Know About Roth 401(k)s

Roth IRAs have become popular retirement vehicles, but the low contribution limits and participant income limitations have prevented many people from taking advantage of them. The Economic Growth and Tax Relief Reconciliation Act of 2001 provided for designating Roth contributions within a qualified plan. Now many individuals previously excluded can

Is 2008 a Good Year to Elect Out of Installment Sale Accounting?

The sale of investment real estate is often a large taxable transaction, frequently involving deferred payments. Installment sale accounting is automatic under IRC § 453, although taxpayers may elect out and recognize all of the income currently. Usually, taxpayers would rather defer income, but right now, it may make better

E-Filing Lags behind Mandate

IRS estimates indicate about 60% of all tax forms will be electronically filed during 2008, far short of a 1998 congressional mandate of 80% by 2007. For a second year, the Service’s Electronic Tax Administration Advisory Committee recommended that Congress authorize the IRS to require e-filing by paid tax preparers

Knowing But Innocent

The Tax Court held that the IRS abused its discretion in denying a stay-at-home mom’s request for innocent spouse relief because it did not consider all of the relevant factors. Chrystina Nihiser filed for relief after her husband stopped paying their taxes due to financial problems with his business. Although

Supplemental Wage Withholding Explicated

With Revenue Ruling 2008-29, the IRS analyzed nine scenarios for applying withholding rules to commissions, severance pay and other forms of supplemental wages under IRC § 3402, including proper application of the aggregate versus optional flat-rate methods. The guidance supersedes revenue rulings 67-131 and 66-294.

FLPs Revisited

The Tax Court ruled, contrary to the IRS’s argument, that the step transaction doctrine did not apply where gifts of interests in a family limited partnership (FLP) were made only six days after the funding of the partnership with stock. However, the court also partially denied the taxpayers’ discounts for

What’s in Their Wallet?

The Tax Court rejected an attempt by credit card issuer Capital One to retroactively defer its recognition of income from fees for late payments of card balances. Capital One sought to do so by taking advantage of a law change allowing such payments to be characterized as changes to original

The Taxpayer Advocacy Panel:An Opportunity to Collaborate With the IRS

EXECUTIVE SUMMARY The Taxpayer Advocacy Panel (TAP) of the IRS is another way CPAs can serve their clients and all taxpayers, by listening to their concerns and recommending improvements to the Service. Some of the many measures the TAP has championed and seen adopted by the Service include the automatic

Offshore Preparers OK’d to See SSNs

The IRS modified its final rules regarding the disclosure of a taxpayer’s Social Security number to a tax return preparer located outside the U.S. to allow disclosure under specified circumstances. Previously, the rules had generally required U.S. preparers to redact SSNs from tax return forms and other information transmitted to

More Support for Check-the-Box

Following the U.S. Supreme Court’s refusal to hear an appeal attacking the validity of “check-the-box” provisions, a district court has similarly denied a legal challenge to the default business entity classification. The plaintiff in the more recent decision, L&L Holding Co. LLC v. U.S. (101 AFTR2d 2008-2081), contested an employment

Pass-Through Entity Automatic Extension Shortened

Along with final regulations adopting automatic six-month filing extensions for certain returns, the IRS proposed reducing the extension to five months for partnerships and other pass-through entities. The shorter period is intended to better enable owners to receive Schedules K-1 and other information returns in time to prepare their individual

Another SILO Pulled Down

A district court upheld the IRS’s denial of deductions by two large banks from a sale in, lease out (SILO) transaction, continuing a string of victories by the Service against the one-time promoted shelter. The opinion by the court for the Northern District of Ohio against KeyCorp and PNC Financial

Lack of Records Equals Recapture

The Tax Court held that a taxpayer had to recapture the majority of his prior-year section 179 deduction since he failed to show that the business use of his GMC Suburban remained above 50% in the following tax year. His testimony of the business use of the vehicle, although considered

Abusive Insurance and Retirement Plans

EXECUTIVE SUMMARY Some of the listed transactions CPA tax practitioners are most likely to encounter are employee benefit insurance plans that the IRS has deemed abusive. Many of these plans have been sold by promoters in conjunction with life insurance companies. As long ago as 1984, with the addition of

Line Items

  IRS ISSUES PROPOSED RETURN PREPARER REGS The Service issued proposed regulations implementing changes made last year to the return preparer penalties in IRC §§ 6694 and 6695 and related provisions (REG-129243-07; see also “From The Tax Adviser,” page 90). Comments are due by Aug. 18, 2008. Among the many

When (and Where) Is It Filed?

The Fourth Circuit recently upheld a Tax Court decision that a deficiency notice beat the three-year statute of limitations only because the taxpayer had hand-delivered his returns to the wrong office. The IRS is generally required by IRC § 6501(a) to assess income tax deficiencies no later than three years

Common-Law Mailbox Rule Reopened

The Third Circuit Court of Appeals has reaffirmed as still valid the “common-law mailbox rule”—that a properly mailed document is presumed to reach the IRS within normal delivery time—despite holdings by other circuits that the rule was supplanted by the 1954 Tax Code provision that allows a postmark date to

LILO Comes Up One Leg Short

The Fourth Circuit Court of Appeals held that a LILO (lease in, lease out) transaction by banking company BB&T Corp. was not a genuine leasehold interest but only a circular transfer of funds. In so ruling, the Fourth Circuit upheld a district court’s denial of deductions arising from the deal.

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Sec. 338(h)(10) elections in business acquisitions

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