Reps. Joe Crowley, D-N.Y., and Jim Ramstad, R-Minn., introduced a bill (HR 4318) in the House to make tax preparers subject to penalties under IRC § 6694 if a position for an undisclosed, non-tax avoidance item lacks substantial authority. A provision in a larger troop funding bill, which was enacted
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Tax
Congress Passes Expat Rules
Just before the Memorial Day holiday, the U.S. House and Senate passed by unanimous consent and voice vote, respectively, HR 6081, the Heroes Earnings Assistance and Relief Tax Act. The act provides benefits to military personnel, funded in part by new rules for taxing individuals who expatriate. The bill also
The Scholarship Trap for Foreign Students
Many U.S. colleges and universities recruit foreign students, especially for graduate programs and athletics. Such students often receive full scholarships that include room and board, making them subject to U.S. income taxes. These students may be unfamiliar with the U.S. tax system, but they need to understand
Long-Term Care Insurance and Tax Planning
EXECUTIVE SUMMARY Long-term care (LTC) insurance benefits are tax-free to the insured for either reimbursement of qualified expenses or payments up to a per-diem limit indexed for inflation—$270 in 2008. Premiums for LTC insurance are tax-deductible according to limits that are also indexed to inflation and increase with the age
Equal Treatment for All Taxpayers
The Tax Court reversed its prior decision in a “retail tax shelter” case, granting further relief from assessments to approximately 400 taxpayers. It did so because the IRS secretly—and fraudulently—entered into more favorable settlements with some test case litigants before the test cases were decided. The action marked a reversal
Line Items
COURTS ON BOARD WITH CSX CASE At least one other court has ruled that supplemental unemployment compensation benefits (SUCBS or SUBs) paid by employers to laid-off employees are subject to FICA taxes, after the Federal Circuit so ruled in the long-running case CSX Corp. v. U.S., 101 AFTR2d 2008-1120 (see
Debt Forgiveness Taxed
Two exceptions to the general provision of IRC § 61(a)(12) recognizing income from the discharge of indebtedness were tested recently in separate cases, but the taxpayers were not successful in either. Argued before the U.S. Bankruptcy Court for the Eastern District of Tennessee, Higgins v. Commissioner involved discharge of indebtedness
Unitary Business Principle Clarified
A recent addition to the Lexis database of Supreme Court decisions could spare the electronic legal research service’s former owner from a $4 million tax bill. In MeadWestvaco v. Illinois , the nation’s top court said an Illinois appellate court improperly applied the operational function test of the unitary business
Vacation Home Swaps Get Safe Harbor
Your clients might own a getaway home in the country, a cozy cottage on a lakeshore, a condo on the oceanfront or a rustic cabin in the mountains. When they sell it, they may recognize gain without the benefit of the principal residence exclusion in IRC §
The Code Trumps Tucker
The U.S. Supreme Court recently held that an unconstitutionally assessed excise tax could not be recovered under the Tucker Act—the general provision for non-tort claims against the United States—for tax years outside the normal three-year period for filing refund claims. Thus the court overturned a decision by the Court of
Levels of Certainty
Two rulings in separate cases by the Court of Federal Claims helped clarify how penalties involving partnerships are imposed and defended against at the partnership and partner levels. Because partnerships are flow-through entities, contested partnership items were formerly litigated at the partner level. This approach, however, led to repetitive legal
Watch Out for Private Annuities
EXECUTIVE SUMMARY With the release of Prop. Treas. Reg. §§ 1.72-6(e) and 1.1001-1(j) in October 2006, the Treasury and IRS have signaled their intent to recognize gain or loss at the time of exchange of property other than money for an annuity contract. Previously, taxpayers may have recognized such gain
Capital With a Conscience
EXECUTIVE SUMMARY Private foundations must distinguish between what are sometimes called mission–related investments and program–related investments (PRIs). PRIs enable private foundations to make venture capital–type investments that might otherwise be penalized under the IRC as “jeopardizing,” that is, risky. Mission–related investments, although not technically defined, nonetheless have their
Check-the-Box Regulations Are Valid
The U.S. Supreme Court declined to review a case in which a business owner argued that “check-the-box” entity classification rules represent an invalid exercise of the IRS’s authority to issue interpretive regulations under IRC § 7805(a). In so doing, the court let stand a ruling by the Sixth Circuit
Kinder, Gentler IRS Turns to Liens, Levies
In the early 1990s, IRS enforcement activities were fairly aggressive. In several well-publicized cases, individual taxpayers lost their homes and livelihoods to the IRS because of unpaid taxes. As a result, public sentiment turned against the agency, and congressional hearings were held to address the problem. Congress
Share Loans Under IRS Microscope
TAX PRACTICE In a recently released Coordinated Issue Paper (LMSB-04-1207-077), the IRS underscored how its examinations will home in on a once-favored strategy for monetizing stock gains while deferring capital gains taxes. In doing so, the Service reiterated its legal basis for why a variable prepaid forward
Cook Won’t Excuse Estate From Table
Despite contrary holdings by other circuits, the Fifth Circuit recently held fast to its earlier decision in Cook v. Commissioner to once again overrule an estate’s discounting of an annuity interest and restrict it to the valuation tables prescribed by IRC § 7520. The decedent in the recent decision, James
Supporting Org Guidelines Available
The IRS has produced guide sheets and explanations to help applicants for supporting organization status to determine which of the three types of supporting organizations outlined in IRC § 509(a)(3) they fall under. The guides, which include checklists for the organizational test, operational test, control test, relationship requirement and other
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