In U.S. v. MPM Financial Group Inc., the Sixth Circuit scolded the defendant for exercising poor internal controls as it upheld a penalty for failure to comply with a notice of levy against one of its employees, who was also the corporation’s co-owner and president. Because the employer did not
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Tax
No Penalty for BLIPS
In the widely reported case Klamath Strategic Investment Fund (see “Tax Matters,” JofA, March 07, page 72), the district court disallowed claimed losses on a finding that the transactions were shams and lacked economic substance. An important but less widely known aspect of the case was the court’s refusal to
Determining Basis for Gambling Losses
With the proliferation of legal types of gambling (lotteries, casinos, horse and dog racing, jai alai, bingo, etc.), many more taxpayers are in the (enviable) position of having to report winnings on their tax returns. While many taxpayers may generally know that they can deduct their losses
Report Says IRS Fails to Protect Sensitive Data
The agency tasked with processing more than 220 million tax returns annually is not doing an adequate job of protecting the sensitive personal financial information of the taxpayers submitting those forms, according to a report from the Treasury Inspector General for Tax Administration (TIGTA). TIGTA said IRS employees reported the
Stakes Increase as High-Profile Bills Move Through
The new House and Senate Democratic majorities started the year with aggressive agendas, passing several pieces of legislation in the first 100 hours. However, as the burden of being in the majority takes its toll, they are finding it increasingly difficult to reconcile the differing House and Senate versions of
New Law Provides AMT Relief
Individuals holding incentive stock options have historically faced a dilemma at tax time. If options are in the money, they may be subject to the alternative minimum tax (AMT) on paper profits even before selling their shares. If they sell their shares at a loss, their net
Pay Upfront on OICs
The IRS revised its offer-in-compromise (OIC) application package to reflect changes of the Tax Increase Prevention and Reconciliation Act of 2005. Form 656 includes a checklist designed to help taxpayers determine whether they are eligible to file an OIC before they prepare the form. Also, for OICs submitted after July
AICPA Criticizes Tax Patents
Congress should restrict patents on tax strategies or protect taxpayers and preparers from infringement actions arising from them, the AICPA told members of congressional committees. In letters to the House and Senate tax-writing and judiciary committees and a white paper, the AICPA said one government agency—the U.S. Patent and Trademark
Avoiding FASB 123(R) Pitfalls
EXECUTIVE SUMMARY FASB Statement no. 123(R), Share-Based Payment, poses a potential dilemma for companies with net operating losses (NOLs) that award nonqualified stock options (NQSOs) as compensation. If a company’s allowable tax deduction for stock option compensation exceeds the related book expense, it can realize an
35% Flat Tax Hits Non-CPAs
A C corporation that provides accounting services doesn’t have to be owned by or employ CPAs to be taxed at the flat 35% personal-services corporation rate of section 11(b)(2), according to a recent Tax Court ruling. In Rainbow Tax Service, Inc. v. Commissioner, 128 T.C. No. 5, the taxpayer was
Time to Rethink Your 401(k) Plan?
EXECUTIVE SUMMARY The PPA has made it easier for plan sponsors to automatically enroll employees in a retirement plan by eliminating the worry over state withholding laws. It delineates a new safe harbor automatic enrollment provision that starts the automatic deferral at 3%, raising it by
E-Filing Lags
Since about 54% of individual taxpayers e-filed in 2006, it seems unlikely that a congressionally mandated goal of 80% for this year will be met, the IRS Oversight Board said in its annual report to Congress. The board suggested extending the goal to 2012. E-filing declined in 2006 among individuals
Incentives for Businesses in Distressed Communities
Since the mid-1990s, Congress has tried to help businesses operating in certain low-income and economically disadvantaged areas. This has taken the form of tax credits and deductions for businesses that locate in, and hire residents from, those areas. These inducements may be of interest to companies looking
In the Line of Duty
The Second Circuit Court of Appeals ruled against a military veteran’s income-exclusion claim, affirming the Tax Court’s distinction of taxable disability benefits versus exempt benefits paid for a service-connected injury. William D. Reimels was exposed to Agent Orange during service in Vietnam in the 1970s. He then worked in the
IRS, B&D Tool Up for Trial
By reversing a district court’s grant of summary judgment that originally favored the taxpayer (see “Tax Matters,” JofA, March 05, page 88), the Fourth Circuit Court of Appeals opened the door for further interpretation of the “sham transaction” rule as it relates to contingent liability transactions. The case, involving Black
Horse Sense Applied to Startup
In its first ruling of 2007, the Tax Court concluded that a woman could deduct expenses of for-profit horse boarding and training that later grew into a business. Had the IRS prevailed, taxpayers who engaged in a for-profit activity with the hope it would grow into a full-fledged trade or
IRS Directors “Own” Shelters
With the new Industry Issue Focus initiative of its Large and Mid-Size Business Division, the IRS is poised to concentrate more resources on its top enforcement priorities, which are weighted toward business and industry. The new strategy gives IRS directors compliance “ownership” of each of 14 Tier 1 issues, plus
Whistleblowers Wanted
The government has decided that whistleblowers are its friends, and it is increasingly making efforts to nourish and protect them. This is evidenced by a provision of the Tax Relief and Health Care Act of 2006 that increased potential rewards to people who provide information on individuals
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