States could face new limits on how they impose income taxes on nonresidents if a House proposal becomes law. Under the terms of the Mobile Workforce State Income Tax Fairness and Simplification Act of 2007 (HR 3359), introduced by Rep. Henry C. Johnson Jr., D-Ga., a state or locality could
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TOPICS
Tax
“Transactions of Interest” Regs Finalized
Proposed regulations under section 6011 concerning disclosure of reportable transactions, which include the new category of “transactions of interest,” have been finalized. In general, the final regulations apply to transactions entered into on or after Aug. 3. However, the provision regarding transactions of interest applies to transactions entered into on
Smart Stops on the Web
TAX BIG RESOURCES FOR SMALL BUSINESSES www.irs.gov/businesses/small Whether you own a small business or work for one, this IRS site sorts out tax-related information so you don’t have to. There’s an A–Z index that lets you search by business type or by subject. It lists the
Pot Parsed From Deductible Expenses
As a general rule, it is illegal to traffic in marijuana, although California and some other states have legalized the use of marijuana for medical treatment. A California nonprofit benefit corporation that supplied medical marijuana to its members recently failed in its bid to deduct marijuana-related expenses but won a
Accounting for Uncertainty
EXECUTIVE SUMMARY FASB Interpretation no. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, sets the threshold for recognizing the benefits of tax return positions in financial statements as “more likely than not” (greater than 50%) to be sustained by a taxing authority. The effect is most
D.C. Circuit Switches Position in Murphy
The Court of Appeals for the D.C. Circuit recently reissued its opinion in Murphy, Marrita v. IRS (see “ Tax Matters,” JofA, Feb. 07, page 70). The original opinion was released in August 2006, and vacated in December 2006, after the IRS requested a rehearing en banc. The request was
Nexus and FIN 48: States of Flux
The reporting requirements of FASB Interpretation no. 48 have exacerbated an already vexing matter for many CPAs and taxpayers—the uncertainty surrounding the tax issue of nexus. Much of that uncertainty derives from inconsistent adjudication of nexus issues by state courts and the absence of recent guidance from
Matching Asset Values for Income and Estate Tax
Two recent cases confirm that the income tax basis of inherited property is the same as the amount agreed upon for estate tax purposes. The Second and Ninth circuit courts of appeals held that two brothers, as heirs of their father’s estate, must use as their income tax basis the
Forced Home Sale Can Result in Income to the Borrower
When the real estate market was booming, homeowners either borrowed heavily to buy in at the top or took out home-equity loans, which added to their debt. Now that the real estate market has cooled, some homeowners are waking up to an unpleasant reality: They can’t make
Small Biz Burdens
Small businesses in the U.S. face a heavy burden when complying with income and employment tax laws, according to preliminary results of an IRS survey of compliance burdens Among the tax activities performed by businesses with less than $10 million in assets—including recordkeeping, working with a paid professional, completion and
Settlement Doesn’t Legitimize Sham
The U.S. District Court of New Hampshire ruled that a taxpayer couldn’t claim losses stemming from partnerships’ transactions that lacked economic substance, even though a settlement with the IRS had allowed some of their claims. Richard Nault invested in several agricultural limited partnerships between 1984 and 1986 that reported significant
S Corporation Profits or Payday
EXECUTIVE SUMMARY CPAs can help their clients determine what is a reasonable salary to pay shareholder employees (SEs) of S corporations, thus satisfying an IRS priority to collect proper amounts of employment taxes. Distributions, including “disguised distributions” such as a loan to an SE by the corporation or in-kind
IRS Adopts Westpac
The IRS said it will follow the ruling of the Ninth Circuit Court of Appeals in Westpac Pacific Food v. Commissioner (97 AFTR2d 2006-3014) concerning timing of recognition of volume trade discounts paid as cash advances. Westpac, a West Coast partnership of grocery retailers, received advances from manufacturers in exchange
Blended Family an “Unforeseen Circumstance” for Home Sale
The IRS said a marriage that resulted in a large, combined new family was an “unforeseen circumstance” provided for in IRC § 121(c)(2)(B) that allowed a taxpayer to benefit from the capital gain exclusion on the sale of his principal residence. Letter Ruling 200725018 said the taxpayer could take advantage
You Say Omit, I Say Understate
The Tax Court recently held that an understatement of gain by a partnership due to overstating its basis on a section 754 election did not result in an omission of gross income. Thus a proposed gain adjustment by the IRS was not timely, since it occurred after the expiration of
AICPA Urges Congress to Reconsider Preparer Standards
When Congress passed the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007, it contained one major tax policy change not reflected in the title. The law, which was enacted May 25, included a provision that raises the standards applicable to tax return
Senators Propose Tax Nexus Bill
A bipartisan proposal introduced by two members of the Senate Finance Committee would establish a so-called bright-line standard for state business activity tax nexus. Sens. Charles E. Schumer, D-N.Y., and Mike Crapo, R-Idaho, introduced the proposal in the Business Activity Tax Simplification Act of 2007 on June 28. The law
Data Point: 13,000
Number of individual tax returns for 2006 that will be randomly selected for review in the IRS National Research Program reporting compliance study. Source: IRS, www.irs.gov .
Foreign Tax Credit Form Revised
The IRS is requesting comments to proposed changes to Form 1118, Foreign Tax Credit—Corporations . U.S. corporate taxpayers use the form to compute the foreign tax credit for certain taxes paid or accrued to foreign countries or U.S. possessions. As noted in IRS Announcement 2007-62; 2007-29 IRB 1, the changes
E-File for Excise Taxes
The IRS is implementing electronic filing for excise taxes with Form 2290, Heavy Highway Vehicle Use Tax Return , beginning with the filing period July 1, 2007, to June 30, 2008. The IRS received more than 575,000 paper Forms 2290 last year. The Service will continue to accept the return
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