Tax planning and compliance for investors
Free Online Guides
May 20, 2013
By Kaye A. Thomas
Individual retirement accounts typically hold conventional investments such as publicly traded stocks, bonds, mutual funds and certificates of deposit. If you want it to hold something unusual, such as real estate or an interest in a business that isn’t publicly traded, you have to establish a self-directed IRA at a financial institution that will accept these entities. I’m not a fan of the idea, and a recent Tax Court case illustrates one of the dangers.
May 18, 2013
No joke: all offices of the IRS throughout the country are going to shut down. But don’t get excited, it will be just for a day: May 24. And then for three other days: June 14, July 5 and August 30. IRS employees will be on unpaid furlough those days due to what the agency calls “the current budget situation, including the sequester.” Filing deadlines will not be affected, but on these days you won’t be able to reach the IRS by telephone, and the Service won’t be accepting or acknowledging electronically filed returns or conducting any compliance activities.
April 9, 2013
By Kaye A. Thomas
The Obama administration has revealed that the budget proposal to be published later this week will include a $3 million cap on retirement accounts.
March 28, 2013
The Tax Court has issued a ruling favorable to Swiss golfer Sergio Garcia. (If you follow golf, you probably think of him as Spanish, but his residence in Switzerland entitles him to certain tax benefits.) At issue was how much of his TaylorMade endorsement income is subject to U.S. income tax. The payment has to be apportioned between income for personal services and royalty income. A previous decision involving golfer Retief Goosen, who has an endorsement contract with the same manufacturer, allocated the payment 50-50. In this case, the court found reasons to allocate 65% of the payment to royalty income, which escapes U.S. income tax under a tax treaty with Switzerland. More striking, though, is the value of a dynamic personality in the world of golf endorsements. Goosen, who has won the U.S. Open twice, had a contract worth $400,000. Garcia, who has never won a major, commanded a $5.5 million contract. We wonder how much of that figure is ultimately attributable to a single shot Garcia hit in 1999 — golf fans know the one — eyes closed as he struck the ball from a seemigly impossible position behind a tree, then ran out onto the fairway and leaped in the air to see over a mound as the ball sailed onto the green.
Opinion: Garcia v. Commissioner (PDF)
March 28, 2013
The demutualization saga continues to play out. These cases involve holders of insurance policies issued by mutual insurance companies that convert to business corporations (a transaction known as demutualization). Mutual insurance companies are owned by their policyholders, who therefore receive shares of stock in a demutualization. A number of taxpayers have challenged the IRS position that these shares have zero basis, asserting that a portion of the premiums paid on the insurance policies should be allocated to basis of the shares. We previously reported on the Dorrance case, in which the court determined that a factual determination would be required to allocate premium payments to basis. The court has now published its determination that the basis of the shares was over $1,000,000, which was roughly half the price at which the shares received in the demutualization were sold.
The IRS does not agree with the result in the Dorrance case, and litigation over this issue continues. Taxpayers who sold shares received in a demutualization in years that are still open under the statute of limitations should consider filing protective claims. Under the general rule the oldest year still open is 2009, and that year closes on April 15, 2013, the third anniversary of the due date for income tax returns for that year.
March 11, 2013
The IRS has denied tax-exempt status to a religious organization espousing a belief in “celestial marriage,” which includes “a plurality of wives.” The organization argued that celestial marriage is a private religious relationship and does not constitute bigamy, but the IRS pointed to contrary rulings and said, “Because you advocate and engage in activities that contravene state laws and state and federal public policy, you cannot be a valid religious trust.”
March 11, 2013
Changes are coming to two resources that are often used by tax researchers. The IRS says they will continue to produce the Internal Revenue Bulletin, a weekly collection of rulings, procedures and other guidance, but will stop mailing paper copies. No great loss there: the PDF is readily available online. The Cumulative Bulletin, a semiannual compendium of this guidance (together with some other items) won’t be produced at all. If your collection runs through 2008 (the last ones produced) it is now complete.
Elimination of the largely redundant Cumulative Bulletin will be a time-saver for legal publishers who have had to run a last minute check before publication to determine whether a citation to IRB has to be updated to CB.
March 5, 2013
The IRS has announced that forms previously on hold for reprogramming due to late changes in the tax law will now be accepted.
March 3, 2013
A few years ago, to stimulate the housing market Congress created a special credit for certain people buying homes. It was called the first-time homebuyer credit, although it wasn’t strictly limited to people who had never owned a home. The first version of the credit was really an interest-free loan made through the tax system: qualified taxpayers received the credit in the year they bought the home but had to repay it through “recapture” of the credit over a number of years. If you claimed this version of the credit and are unsure where you stand in terms of repaying it, the IRS has a new tool on its website where you can look up this information. (Taxpayers who used the revised version of this credit do not have to repay it.)
|That Thing Rich People Do||The fastest, easiest way to learn the principles of investing.|
|Our complete guide to Roth IRAs and Roth accounts in employer plans: choosing, creating, building and using these accounts.|
|Consider Your Options|
|A plain-language guide for people who receive stock options or other forms of equity compensation.|
|Equity Compensation Strategies|
|A text for financial advisors and other professionals who offer advice on how to handle equity compensation including stock options.|
|Capital Gains, Minimal Taxes|
|Tax rules and strategies for people who buy, own and sell stocks, mutual funds and stock options.|