Tax

In the past, the IRS prevented taxpayers who maintained inventories from using the cash method of accounting for federal income tax purposes. Instead, Treasury regulations section 1.446–1(c)(2)(i) forced taxpayers to use the accrual method to account for purchases and sales. Under section 1.471–1, the use of inventories is required “in

Last fall, the Tax Court issued several unusual related memorandum decisions on the earned income tax credit (EITC)—a refundable credit available to taxpayers with income below a specific threshold. The cases involved five prisoners who attempted to claim the EITC on money they had obtained from “begging.” The Florida inmates

Taxpayers must often rely on professionals to advise them on tax matters. Estate taxation can be particularly complicated for a layman. The personal representative of an estate, responsible for administering a decedent’s financial affairs, often has no knowledge of tax issues. Fiduciaries who disregard claims of the United States (including

It’s not uncommon for a taxpayer that has defaulted on a debt to find the property securing the debt is worth less than the amount of the liability. In the event of a sale, the tax treatment will differ depending on how the debt is structured. If the debt is

Taxpayers are required to include COD amounts in income. A taxpayer that is insolvent at the time a debt is cancelled can exclude COD income from gross income. The Internal Revenue Code defines insolvency as the excess of liabilities over the fair market value of assets. A recent case examined

Cash Accounting Okay for Drugs A professional medical corporation specializing in oncology and hematology maintained a two-week supply of chemotherapy drugs on its premises. Nurses administered the drugs, but a physician was always on site to respond to emergencies. The drugs could not be self-administered and patients could select neither

On August 3, 1994, Irma Drye died without a will, leaving her son and sole heir, Rohn, an estate worth $236,000. Rohn was insolvent and owed the IRS approximately $325,000. The IRS had valid tax liens against all of his property. So, Rohn disclaimed all interest in his mother’s estate,

In 1998, Congress added section 7525 to the Internal Revenue Code, creating an accountant/client privilege. Like the privilege that already exists between attorneys and their clients, it extends to tax advice but not tax return preparation. A recent decision by the Seventh Circuit Court of Appeals examined the scope of

A year ago the JofA gave readers a look at the blueprint for the new IRS (see “IRS Begins Its Metamorphosis,” JofA , Mar.99, page 23). It has taken some time, but finally the service is putting into place the structure that will characterize the IRS of the 21st century.

Pick a Better Test In a decision that reversed a Tax Court ruling, the Seventh Circuit Court of Appeals held that the salary a closely held corporation paid to its majority owner and CEO was reasonable. The owner and CEO was the company’s chief sales and marketing person, head of

IRC section 404 limits the amount of retirement plan contributions an employer can deduct. It is unclear, however, whether IRC section 404 also limits deductions for plan-related expenses. Sklar, Greensteen & Scheer, PC, a professional services corporation, established a retirement plan, hiring a representative of Prudential-Bache Securities to manage some

Beginning this year, tax practitioners can use alternative numbers called PTINs on the individual tax returns they prepare for clients instead of their own Social Security numbers. The IRS is providing this option in response to practitioners’ concerns about privacy and possible misuse of their Social Security numbers by anyone

On October 4, 1999, the U.S. Supreme Court let stand a ruling by the Arizona Supreme Court that supports the constitutionality of school tuition organizations—tax-exempt entities that provide scholarships to students. The ruling, which answered the question of whether these organizations violate the separation between church and state, silenced critics.