In Action on Decision 2008-001, the Service said it would not acquiesce in the Tax Court’s allowance of a taxpayer’s contested valuation of the stock of a closely held corporation following a post-death, tax-free reorganization. The court’s 2006 decision represented a $100 million victory for family owners of privately held
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Tax
Capitalization Regs Reproposed
Rather than finalize 18-month-old proposed regulations on capitalization of tangible assets, the Service withdrew the 2006 proposed regulations and reproposed them in revised form March 10. The regulations are intended to better distinguish between repair or maintenance on the one hand versus improvements and provide a standard for “betterment or
LIFO Snafu Is Change in Method
The Sixth Circuit Court of Appeals recently upheld a Tax Court finding that the consistent omission of a step when computing inventory cost under the dollar-value LIFO method was a change in accounting method rather than a mathematical error. Thus a $1,754,293 cumulative difference between the correct valuation of
How Will IFRS Affect Tax Practitioners?
M any companies are in the early stages of considering what impact the transition to International Financial Reporting Standards (IFRS) from U.S. GAAP will have on financial reporting. However, are they also thinking about the impact it will have on tax reporting? While practitioners may have focused on the
Data Engine Chugging Along
The cornerstone of the IRS’s efforts to modernize its computerized return-processing system is progressing in capacity and performance, the IRS said in a news release. The Customer Account Data Engine (CADE) had handled more than 15 million individual tax returns by March 7 in the 2008 tax filing season, more
Equitable Recoupment a Timeless Remedy
An amendment to IRC § 6214(b) included in the Pension Protection Act of 2006 empowers the Tax Court to apply equitable recoupment to offset overpayments of hospital insurance taxes (the Medicare portion of FICA) against income tax deficiencies, according to the court’s ruling in Menard Inc. v. Commissioner . Although
Section 199 Final Regs Issued
The IRS issued final regulations under the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) amending provisions of the domestic production activities deduction of IRC § 199. The deduction for tax years beginning in 2008 is potentially 6% of the lesser of qualified production activities income (QPAI) or taxable
FICA Holdings Overturned
The U.S. Court of Appeals for the Federal Circuit recently reviewed three prior decisions of the U.S. Court of Federal Claims involving railroad operator CSX Corp. and whether certain payments to laid-off employees were wages for purposes of FICA (for the lower court’s main ruling, see “Tax Matters: When Are
It Takes a Thief
A lender sunk by subprime mortgage exposures and the financial subterfuge of a parent corporation did not give rise to a theft loss deduction by investors, despite criminal charges having been brought against an officer of the parent company, the IRS said in a Chief Counsel Advice. The legal memo,
Virtues and Evils of Life Settlement
EXECUTIVE SUMMARY Life settlement, in which life insurance policies are sold in a secondary market, has become a major financial market and viable opportunity for CPA clients to convert unneeded policies for more than their cash surrender value (CSV), often with favorable tax treatment. As an indicator of interest in
High Court: No Evasion Without Deficiency
The U.S. Supreme Court vacated a conviction for criminal tax evasion, holding that the taxpayer could argue that distributions he received were a nontaxable return of capital. If they were so characterized, then the taxpayer had no tax deficiency, which is a required element of tax evasion, the court pointed
The Liechtenstein Connection
The IRS warned that some 100 Americans were likely to be caught up in its investigation in cooperation with other countries of tax evasion in Liechtenstein. Any U.S. taxpayer hiding income and gains in the tiny principality in the European Alps would do well to “make a prompt and complete
UBTI Subject to Excise, Not Income Tax
In new proposed regulations issued March 6, the IRS amended regulations under IRC § 664(c) to provide that charitable remainder trusts with unrelated business taxable income (UBTI) are now exempt from federal income tax but are subject to a 100% excise tax on the UBTI. These changes are necessary to
A Healthy Deduction for 2% Shareholders
in Notice 2008-1, the IRS has offered an opportunity for 2% shareholders of an S corporation to receive a deduction for health insurance premiums under IRC § 162(l). A 2% shareholder is defined in section 1372(b) as a person who owns directly or constructively under section 318 on any day of
Check Your Parachute
The IRS provided temporary relief from its new, tougher stance on qualifying performance-based compensation exempt from the general $1 million deductibility limit on executive pay. In Revenue Ruling 2008-13, the Service officially adopted a controversial holding from an earlier private letter ruling but said the treatment will not be applied
A Not-So-Speedy Recovery
The Court of Federal Claims applied rules on theft loss subject to recovery in a holding that recognized a deduction later than it was initially claimed by a taxpayer but, for a portion of the loss, sooner than the IRS had allowed. Casualty and theft losses are deductible under IRC
Post-Transaction Adjustments
More and more, global companies are discovering that year-end adjustments to intercompany transfer pricing can improve the accuracy of their transfer pricing tax reporting and, potentially, help prevent overpaying taxes by millions of dollars. However, increasing scrutiny by tax authorities in the United States and other key countries makes it
Tax Software Survey To-Dos
I’d like to make a few suggestions for next year’s tax software survey (“Users Grade Tax Software ,” Oct. 07, page 34). For example: Ask how well the software handles multistate corporate returns. Ask if the alternative minimum tax adjustments and preferences seem to flow. Ask how well the error
All in the Family?
The Tax Court recently held that a note does not constitute a qualified family-owned business interest (QFOBI) for purposes of IRC § 2057, which allows an estate to deduct up to $675,000 from its value for estate tax purposes. To qualify for the deduction, the value of the QFOBI at
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