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, 2011by Kaye Thomas
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.
Cat Care Cost Controversy
June 3, 2011by Kaye Thomas
Can you deduct the cost of cat food and litter? Maybe, but not for the cats you love most. Read the rest of this entry »
Taxation of ETF Options
May 31, 2011by Kaye Thomas
There are two sets of rules for taxation of options. One set, which might be called the regular rules, applies to options to buy or sell stock in a company. Different rules apply when options qualify as section 1256 contracts. Section 1256 of the Internal Revenue Code offers unique treatment for these options:
- Capital gain or loss is treated as 60% long-term and 40% short-term without regard to how long you held the option.
- Any positions you hold at the end of the year are marked to market, which means you report gain or loss based on their current value even though you haven’t sold them.
If you use options in your investment strategy, it may be important to know whether options to buy or sell shares in exchange-traded funds, or ETFs, are treated as regular options or section 1256 contracts. The answer: it depends. Read the rest of this entry »
Burdensome Reporting Rule Repealed
April 15, 2011by Kaye Thomas
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, 2011by Kaye Thomas
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.
IRS Offers Last Minute Filing Tips
April 8, 2011by Kaye Thomas
We don’t republish all the tips offered by the IRS, but if you’re up against the filing deadline, the following may be helpful. Read the rest of this entry »
Law Professors Will Love This Case
April 7, 2011by Kaye Thomas
Once in a while a real head-scratcher of a tax case comes along, and they always seem to involve in one way or another the definition of a capital asset. One that happened to be decided when I was in law school (and was used as the basis for an exam question in a course on tax law) involved someone with a rare blood type who received payments — tens of thousands of dollars, because we’re talking really rare — for permitting her blood plasma to be drawn repeatedly. Was she providing a service? Or selling a capital asset? If the latter, did she have any basis in the asset? Read the rest of this entry »
Tax Court Says Day Trading Is Dissipation
March 25, 2011by Kaye Thomas
If you find yourself owing the IRS more than you can possibly pay, you may be able to settle for a reduced amount through a procedure called an offer in compromise. The IRS doesn’t always agree, however. Among other possible reasons, they may reject an offer in compromise if it appears you dissipated assets, consuming or wasting money that could have been used to pay your debt to the government. In a recent case, the Tax Court ruled that the IRS can treat losses incurred in day trading as dissipation. The result is unusual because people who take up day trading generally do so with the thought that they’ll make a profit, rather than fritter money away. Read the rest of this entry »
Homebuyer Credit Causes Processing Delays
March 24, 2011by Kaye Thomas
The IRS is working on solutions to problems that are causing delays in the processing of certain categories of income tax returns filed by individuals who claimed the homebuyer credit. The affected taxpayers do not need to contact the IRS or take any other action; they simply need to expect some delays.
