In a brief summary opinion (PDF) the Tax Court held that an individual who otherwise qualified for the first-time homebuyer credit would not be allowed to claim it because he bought the home from a family trust that was a “related person” for purposes of these rules. The taxpayer argued that the credit should be allowed where the trustee and the homebuyer are not the same individual, but the court rejected that argument.
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May 10, 2012
May 10, 2012
IRS Loosens up on Local Lodging
May 4, 2012
The IRS has issued proposed regulations that would make it easier to deduct “local lodging” costs — in other words, staying overnight when not away from home. The new rules provide a safe harbor for certain local lodging at a business meeting, conference, or other activity or function. Other local lodging expenses may be deductible as business expenses depending on the facts and circumstances. Although these rules will officially take effect when final regulations are published, the IRS says taxpayers can rely on them now, including on returns that have already been filed but for which the statute of limitations for claiming a refund has not expired (generally returns for years 2009 or later).
Resource: Proposed regulation in the Federal Register (PDF)
May 4, 2012
The IRS has issued proposed regulations that would make it easier to deduct “local lodging” costs — in other words, staying overnight when not away from home. The new rules provide a safe harbor for certain local lodging at a business meeting, conference, or other activity or function. Other local lodging expenses may be deductible as business expenses depending on the facts and circumstances. Although these rules will officially take effect when final regulations are published, the IRS says taxpayers can rely on them now, including on returns that have already been filed but for which the statute of limitations for claiming a refund has not expired (generally returns for years 2009 or later).
Resource: Proposed regulation in the Federal Register (PDF)
Delay in Reporting Requirement for Options and Debt Instruments
May 2, 2012
The requirement for brokers to report the basis of financial instruments is being rolled out in three stages. Basis reporting for sales of stock took effect in 2011, the first year for mutual fund shares and dividend reinvestment plans is 2012, and basis reporting for options and debt instruments was set to begin in 2013. This last piece is the most complicated, and the IRS has announced a one-year delay, so that basis reporting for options and debt instruments will begin in 2014, not 2013.
Text: IRS Notice 2012-34 (PDF)
May 2, 2012
The requirement for brokers to report the basis of financial instruments is being rolled out in three stages. Basis reporting for sales of stock took effect in 2011, the first year for mutual fund shares and dividend reinvestment plans is 2012, and basis reporting for options and debt instruments was set to begin in 2013. This last piece is the most complicated, and the IRS has announced a one-year delay, so that basis reporting for options and debt instruments will begin in 2014, not 2013.
Text: IRS Notice 2012-34 (PDF)
New Look at S Corp Payroll Tax
April 25, 2012
Owners of an S corporation can receive business profits in the form of wages, which are subject to Social Security and Medicare tax, or dividend distributions, which are not. Naturally they prefer the latter because of the lower tax cost. The IRS can challenge the tax treatment if wage payments are unreasonably low, particularly where business profits are highly dependent on the services or reputation of the owner. Enforcement is difficult, however, and the use of S corporations to avoid paying employment taxes appears to be widespread. Financial disclosures of presidential candidates Newt Gingrich and John Edwards indicate that both of them used this technique.
The idea of closing this loophole has been floating around for some time. For example, California Democrat Pete Stark introduced a bill called the Narrowing Exceptions for Withholding Tax Act (or NEWT Act). The idea hasn’t had much momentum, but may have taken on new life as Democrats have attached a different version of this proposal (without the snarky title) to legislation that would prevent the impending increase in student loan rates. Blocking the increase in student loan rates appears to be a popular idea that has bipartisan support, but it remains to be seen whether the cost will be funded by this particular loophole-closer.
April 25, 2012
Owners of an S corporation can receive business profits in the form of wages, which are subject to Social Security and Medicare tax, or dividend distributions, which are not. Naturally they prefer the latter because of the lower tax cost. The IRS can challenge the tax treatment if wage payments are unreasonably low, particularly where business profits are highly dependent on the services or reputation of the owner. Enforcement is difficult, however, and the use of S corporations to avoid paying employment taxes appears to be widespread. Financial disclosures of presidential candidates Newt Gingrich and John Edwards indicate that both of them used this technique.
The idea of closing this loophole has been floating around for some time. For example, California Democrat Pete Stark introduced a bill called the Narrowing Exceptions for Withholding Tax Act (or NEWT Act). The idea hasn’t had much momentum, but may have taken on new life as Democrats have attached a different version of this proposal (without the snarky title) to legislation that would prevent the impending increase in student loan rates. Blocking the increase in student loan rates appears to be a popular idea that has bipartisan support, but it remains to be seen whether the cost will be funded by this particular loophole-closer.
Some Refunds Delayed by a Week
January 27, 2012
The IRS has announced some taxpayers will receive their refunds about a week later than originally projected. “The one-week delay for some refunds relates to fine-tuning IRS systems to adjust for new safeguards put in place this tax season to provide stronger protection against refund fraud,” the agency explained.
January 27, 2012
The IRS has announced some taxpayers will receive their refunds about a week later than originally projected. “The one-week delay for some refunds relates to fine-tuning IRS systems to adjust for new safeguards put in place this tax season to provide stronger protection against refund fraud,” the agency explained.
Erroneous Disallowance of Homebuyer Credit
August 17, 2011
A report in Tax Notes indicates numerous taxpayers who claimed the original version of the first-time homebuyer credit have received (or will receive) erroneous letters telling them they don’t qualify for the credit. The IRS is aware of the problem and working on a correction.
August 17, 2011
A report in Tax Notes indicates numerous taxpayers who claimed the original version of the first-time homebuyer credit have received (or will receive) erroneous letters telling them they don’t qualify for the credit. The IRS is aware of the problem and working on a correction.
IRS Eases Innocent Spouse Rule
July 27, 2011
Despite winning a number of court victories upholding its position, the IRS has decided to change that position and allow requests for equitable relief under the innocent spouse rules more than two years after the start of collection action. Originally designed to require prompt action by the taxpayer while evidence was still fresh, the two-year limitation was widely criticized as being unfair because one spouse may conceal from the other the fact that collection action has begun. In Notice 2011-70 (PDF) the IRS says it will no longer enforce the two-year limitation.
July 27, 2011
Despite winning a number of court victories upholding its position, the IRS has decided to change that position and allow requests for equitable relief under the innocent spouse rules more than two years after the start of collection action. Originally designed to require prompt action by the taxpayer while evidence was still fresh, the two-year limitation was widely criticized as being unfair because one spouse may conceal from the other the fact that collection action has begun. In Notice 2011-70 (PDF) the IRS says it will no longer enforce the two-year limitation.
Senators Take Swipe at Stock Options
July 20, 2011
Senators Levin (D. Mich) and Brown (D. Ohio) have introduced the Ending Excessive Corporate Deductions for Stock Options Act, legislation that would limit the amount a corporation can deduct in connection with the exercise of compensatory stock options to the amount shown as an expense for the options in its financial statements. Similar proposals have been made in the past without garnering wide support.
Comment: Although it seems superficially logical that the tax deduction should not exceed the accounting expense, these figures differ because their purposes differ. The accounting expense relates to the company’s cost of providing this benefit, which in turn is based on the value of the option when granted. The tax deduction relates to the value of the benefit received by (and taxed to) the option holder, which is based on the bargain element of the option when exercised. A mismatch between these numbers is a normal consequence of ups and downs in stock prices and does not indicate the company has understated its accounting expense or claimed an excessive deduction.
July 20, 2011
Senators Levin (D. Mich) and Brown (D. Ohio) have introduced the Ending Excessive Corporate Deductions for Stock Options Act, legislation that would limit the amount a corporation can deduct in connection with the exercise of compensatory stock options to the amount shown as an expense for the options in its financial statements. Similar proposals have been made in the past without garnering wide support.
Comment: Although it seems superficially logical that the tax deduction should not exceed the accounting expense, these figures differ because their purposes differ. The accounting expense relates to the company’s cost of providing this benefit, which in turn is based on the value of the option when granted. The tax deduction relates to the value of the benefit received by (and taxed to) the option holder, which is based on the bargain element of the option when exercised. A mismatch between these numbers is a normal consequence of ups and downs in stock prices and does not indicate the company has understated its accounting expense or claimed an excessive deduction.
Burdensome Reporting Rule Repealed
April 15, 2011
A rule that would have imposed burdensome new reporting requirements on businesses has been repealed. The rule was designed to clamp down on tax cheats by requiring businesses to file Form 1099 whenever they pay more than $600 to a single vendor for goods and services. It quickly became apparent that this would be a recordkeeping nightmare and both political parties favored repeal. Wrangling over a revenue offset prevented prompt action, but Congress finally agreed on a version that under some circumstances will recapture part of a healthcare tax credit provided by the Affordable Care Act. President Obama signed the repeal legislation despite misgivings about the revenue offset.
April 15, 2011
A rule that would have imposed burdensome new reporting requirements on businesses has been repealed. The rule was designed to clamp down on tax cheats by requiring businesses to file Form 1099 whenever they pay more than $600 to a single vendor for goods and services. It quickly became apparent that this would be a recordkeeping nightmare and both political parties favored repeal. Wrangling over a revenue offset prevented prompt action, but Congress finally agreed on a version that under some circumstances will recapture part of a healthcare tax credit provided by the Affordable Care Act. President Obama signed the repeal legislation despite misgivings about the revenue offset.
Shutdown Averted; Life Goes On
April 9, 2011
If you were sweating it out over whether your tax refund would be delayed over a government shutdown, it appears you can rest easy. In an eleventh-hour deal, government funding will continue through the end of September. A stopgap measure will provide funding until an actual vote on the deal, expected within a few days. It’s not quite a done deal, but observers believe it’s unlikely to unravel. Government operations, including IRS processing of refunds, are expected to continue without interruption.
The deal reportedly includes spending cuts but leaves out non-budget initiatives Republicans had pushed in the areas of abortion and environmental protection.
April 9, 2011
If you were sweating it out over whether your tax refund would be delayed over a government shutdown, it appears you can rest easy. In an eleventh-hour deal, government funding will continue through the end of September. A stopgap measure will provide funding until an actual vote on the deal, expected within a few days. It’s not quite a done deal, but observers believe it’s unlikely to unravel. Government operations, including IRS processing of refunds, are expected to continue without interruption.
The deal reportedly includes spending cuts but leaves out non-budget initiatives Republicans had pushed in the areas of abortion and environmental protection.
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